What is Multi-generational housing?
Multi-generational housing, a unique living arrangement where multiple generations (such as parents, children, and grandparents) share a household, is gaining popularity in Rhode Island. It’s not just a solution for families trying to navigate the challenging housing market as first-time homebuyers but also a way to foster strong intergenerational bonds, creating a sense of community and support for our aging population. This living arrangement can also provide security and stability, as financial burdens and responsibilities are shared among family members.
While there are differing opinions on this concept, it’s worth noting that the housing industry has begun to examine it to make financing more straightforward for everyone involved. This recognition from the industry underscores the potential of multi-generational housing to become another option in the challenging housing market.
According to the Pew Research Center, a quarter of all adults ages 25 to 34 now live in a multigenerational living situation (defined as a household with two or more adult generations). When Pew recently surveyed people living in multigenerational homes, more said financial issues drove the decision to move in with family than any other reason. (Pewresearch.org, 2022)
High Inflation and home affordability appear to be the main reasons younger people choose multi-generation housing. For older people, the reasons tend to be safety and health concerns.
What are the benefits of multi-generational housing?
1. Easier loan approval
Loan approval can become more straightforward when multiple generations pool their financial resources. Lenders may view additional borrowers’ combined income and assets more favorably, increasing the likelihood of approval. This financial advantage is a significant draw for many considering multi-generational housing.
2. Increased purchase power
Including co-applicants like parents or adult children on the mortgage application can enhance borrowing power. Co-applicants share responsibility for the loan and may help qualify for a larger mortgage than a single applicant.
3. Added income
Additional income from family members, such as Social Security benefits or rental income, can strengthen mortgage applications. This added income can also help cover monthly payments and household expenses, providing financial stability.
4. Financial savings
By sharing living expenses, families can significantly reduce their overall housing costs. This includes savings on utilities, groceries, and property taxes.
5. Mutual support
Living together allows family members to provide daily support, whether helping with childcare, eldercare, or simply sharing household responsibilities.
6. Enhanced family bonds
Multi-generational living fosters stronger family connections and creates a supportive environment for all members. This is particularly valuable for children, who benefit from the presence and wisdom of their grandparents.
7. Increased property value
Investing in renovations or adding an in-law, also called an Accessory Dwelling Unit (ADU), can enhance the property’s value. This makes the home more comfortable for current residents and increases its market appeal for future resale.
What are the options for multi-generational homes?
The type of Rhode Island property needed to accommodate a multi-generational living arrangement best depends on the family size and specific needs of the residents. Options include refinancing or using home equity to renovate an existing home, building an addition, an ADU, or an In-law apartment, or pooling all resources and purchasing a new home.
Multi-generational home equity financing
Accessing home equity to remodel or renovate an existing property is an option.
Cash-out refinancing
If there is enough equity in the current home, at least 80%, with the additional income of co-applicants, it may be possible to take more money out to make necessary upgrades. This will involve getting a new, larger mortgage and extending the loan term. However, mortgage rates are usually lower than unsecured loans and credit cards, making this more affordable.
Home Equity Line of Credit
Securing a Home Equity Line of Credit (HELOC) on an existing property will provide quick access to funds. The fees and closing costs on a HELOC are typically lower than those on a cash-out refinance. This option allows flexibility to withdraw and repay funds over a draw period.
Home equity loan
It is a loan for a specific amount with no restriction on what the money can be used for and is generally a stable rate and term financing option.
Mortgages for multi-generational homes
If the family decides that a new home is needed to accommodate a multi-generational living arrangement, applying as co-applicants is an option.
Conventional mortgage loan
Conventional mortgages include 30-year fixed-rate loans and Adjustable-Rate Mortgages. Low down payment options are also available, and terms can range from 10 to 30 years. Loan amounts change from time to time, historically going higher as home values continue to increase.
FHA home loan
FHA loans have less strict lending guidelines and lower down payment requirements. Homebuyers can use FHA loans for one-to-four-unit homes, permitting them to rent additional units while residing in one. FHA loans also allow for down payment gifts or assistance to cover 100% of the down payment and closing costs.
Renovation loans
Renovation loans, such as the FHA 203(k) loan, provide the option to finance both the purchase price and the cost of home improvements in a single mortgage. This can be particularly useful for families modifying their homes to accommodate multiple generations better.
Accessory Dwelling Units (ADUs)
An ADU is a secondary housing unit on the same property as the main home. These units can provide additional living space for family members while maintaining independence. Financing options for ADUs include home equity loans, HELOCs (Home Equity Lines of Credit), and construction loans.
VA loans
Exclusive to eligible active-duty service members, veterans, and some surviving spouses. Learn more about VA loans.
USDA
Requires the property to be in a USDA-eligible rural area. Learn more about USDA loans.
Is Multi-generational housing for me?
If you choose multi-generational housing, the best way to begin this journey is to work with an experienced loan officer to strategize your financing options. Each loan program has specific eligibility requirements that you must understand to make the best choice and leverage the combined financial resources of all involved.
Multi-generational housing often aims to share resources, provide mutual support, and enhance family bonds. While it offers numerous advantages, it’s not a one-size-fits-all solution. Families considering this lifestyle should weigh the pros and cons. Some may find it provides emotional and financial support, while others might struggle with the lack of privacy and differing household routines. If you are considering this living option in Rhode Island, contact one of our loan officers to learn more about the best mortgage options.
Resources:
Pew Research Center
