Financing a “multi-generational” home

It’s becoming more common for families to have multiple generations living under the same roof. Some families opt to commit to buying a “multi-generational” home together designed to accommodate their lifestyle, whether it’s a home with an attached or detached dwelling unit (aka mother-in-law apartment) or even a home built specifically for generations to live together, there are options available for living with your parents and/or grown children.

Should you decide to buy a home with your family, there are a few things to know about the mortgage process. When you’re buying “one home” there will be one mortgage with the borrowers income/employment, assets and credit histories essentially all factored together. (I’ll go into more detail about credit later).  It’s not a “multi-mortgage” situation where if Grandma and Grandpa get a mortgage for $400,000, Mom and Dad obtain a mortgage for $400,000 and the kids qualify for $200,000, allowing you to buy a $1M home together. Whoever is going to be on the mortgage, which may be all adults in the household or a just couple of the adults, will need to submit an application and go through the preapproval process.  Income and assets are evaluated and the combined applications will be subject to standard underwriting guidelines for “debt-to-income” ratios, etc.

Whenever there is more than one borrower on a mortgage, the lowest “mid-score” is used for underwriting and pricing the interest rate. Sometimes, if a borrower does not have great credit or low credit scores or perhaps they have too much debt (student loans, for example), they may be omitted from the mortgage.

Fannie Mae’s Home Ready program allows “extended household income” to be considered as a compensating factor. This basically means that if one of the family members are not on the mortgage (due to credit, for example) that their income may be allow for a higher “debt-to-income” ratio, allowing the family to qualify for a larger mortgage payment. Although Home Ready has income limits in certain neighborhoods, only the income of the borrowers on the application will be factored for the income limits. Next month, Fannie Mae will be updating their guidelines to allow for a 50% debt to income ratio based on risk factors as determined by their automated underwriting system.

If you’re considering buying a 2-4 plex for your families to live together, an FHA mortgage may be worth considering as they allow a greatly reduced down payment and have flexible underwriting guidelines.

VA mortgages currently will not allow for “multi-generational” financing as VA will only lend to qualified Veterans and their spouse.

Another option, if you’re not ready to take the plunge and move in with your family, may be the Family Opportunity Mortgage. The Family Opportunity Mortgage is a conventional program that allows you to help an elderly parent, disabled child or child attending college buy a home. With this scenario, the elderly parent or child would not be required to be on the mortgage.

If you’re considering buying or refinancing your home located anywhere in Washington state, please contact me – I’m happy to help you…and your family!

EDITORS NOTE: Mortgage programs change often. Family Opportunity Mortgage is sadly no longer available… who knows…maybe lenders will bring this back and I’ll be having to update this post again! If you are interested in this product for a home located in Washington state, please contact me and we’ll see if it’s available or if another mortgage program will work for your scenario.

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