From Baby Boomers to Gen Z: The Rise of Multi-Generational Housing

They say what goes around comes around. That’s certainly true of households and families, particularly homes where several generations coalesce and live together under one roof. This is the definition of multi-generational housing. And it’s more popular today than years ago.

Ponder that, between 1971 and 2021, the population residing in multigenerational family homes, often spanning three to four generations, surged to nearly 60 million individuals, marking a fourfold increase. According to Pew Research Center, the proportion of the American populace inhabiting such households more than doubled, reaching 18%.

Buying or creating multi-generational homes is a trend many Americans are considering nowadays. Learn more about what constitutes a multi-generational home, the benefits and drawbacks of living in a multi-generational home, how to convert your home for multi-generational living, and financing options to pursue if you are determined to own one.

In this article (Skip to...)

• What is a multi-generational home?
• Types of multi-generational homes
• Pros and cons
• How to transform your home
• Multi-generational home mortgages options
• Multl-generational home equity options
• FAQ

What is a multi-generational home?

Ask experienced Realtor Bridget Blonde and she’ll tell you that a multi-generational home is one occupied by two or more adult generations of a family.

“Most commonly, multi-generational homes involve parents who are seniors living with grown children to have assistance as they age. Also common is young couples moving one or more parents into their house to help with childcare,” says Blonde, who lives in a multi-generational home herself.

Pew Research Center further reports that, for individuals aged 25 to 29, almost one-third (31%) reside in multigenerational households, frequently within their parents’ domicile. Nearly four out of ten young men (37%) in this demographic are part of multigenerational households, while 26% of young women of comparable age find themselves in similar living arrangements.

Whitney Hill, co-founder and head of business development and innovation for SnapADU, explains that multi-generational living enables families to share a property while maintaining privacy and independence.

“This arrangement could include shared common areas like kitchens and living rooms or could be achieved through entirely separate dwellings on a single property.”

Types of multi-generational homes

A multi-generational home can be created to accommodate different generations of the same family in a few different ways. Many homeowners choose to convert existing living spaces, such as attics or basements, into in-law suites and other areas that can house extra family members.

Others opt to expand their home’s footprint and build outward or upward, adding extra attached square footage. Some elect to build a detached accessory dwelling unit (ADU), which is a self-contained unit on the same property.

“ADUs are permitted as dwelling units separate from the main home and contain their own kitchen facilities,” says Hill, who adds that ADUs are sometimes built attached to the garage or within the backyard and can be wired and plumbed for completely independent living.

Martin Orefice, CEO of Rent To Own Labs, notes that larger homes with ample bedrooms and bathrooms allow everyone to live under one roof.

“People often want more privacy and independence than this, however, whether they are young adults who haven’t yet moved out on their own or retired elders you want to retain some degree of independence. In these cases, homes with ADUs are a great choice.”

If the property is large enough, the homeowners can even opt to keep a mobile home in the yard for family members, assuming this is allowed by their municipality.

Pros and cons of living in a multi-generational home

Several generations cohabitating within the same home can have its perks.

“I can attest to the fact that companionship is one benefit of this type of living situation,” says Blonde. “Others are being able to keep an eye on and assist aging parents, helping with childcare, and strengthening intergenerational bonds among your family. Divvying up shared chores according to preferences is another plus.”

Perhaps the most immediate benefit of multi-generational homes is enhanced affordability through shared living expenses. Having an older parent or another relative move in with you can help them avoid having to pay rent and maintenance costs.

“The pooling of human and financial resources can significantly lessen the burden of any one individual, facilitating better quality of life and even investment in property improvements like ADUs that can increase a home’s value,” Hill continues.

On the downside, there is a lack of privacy to consider, as well as possible conflicts due to conflicting lifestyles or schedules.

“Space can become a premium, sometimes necessitating modifications to the home to accommodate everyone comfortably. There’s also the complexity of managing shared expenses and responsibilities, which constrain relationships if not clearly defined and agreed upon by all parties involved,” cautions Hill.

To ease matters, ADUs and other spaces used by your moved-in relatives should have separate entrances.

“It’s also important to establish and maintain boundaries to avoid resentment infecting your living situation,” suggests Blonde.

How to transform your home for multi-generational living

Transforming existing properties into multi-generational homes involves careful design that prioritizes accessibility and privacy, according to Jason Lamprey, owner of Lamprey Construction, which specializes in crafting in-law suites, converting basements, and building standalone ADUs.

“In our projects, we often install amenities like separate entrances, adaptable common areas, and private suites,” he says. “One example is a recent renovation where we converted a basement into a fully equipped apartment with soundproof walls, ensuring privacy while maintaining the unit’s integration with the main home.”

For best results, it’s wise to enlist the advice of a contractor and/or interior designer who can suggest ADU solutions amenable to your interior and exterior spaces. They may recommend converting your attic or lower level, building a suite above your garage, or constructing a standalone ADU unit in the yard, for example.

“Important design considerations should focus on accessibility, particularly if older family members are involved, and incorporating features like step-free entries, wider doorways, and backing for safety bars in bathrooms,” Hill notes. “Give careful thought to adaptability and how family needs can be accommodated today and in the future while also pondering potential rental opportunities and resale value.”

Before committing to any home renovation, think carefully about safety precautions.

“You want to have large enough windows to escape a fire, install smoke and carbon monoxide detectors, and abide by building codes, such as having railings on staircases,” Blonde says.

Mortgages for multi-generational homes

Eager to purchase a home that’s move-in-ready for multi-generational living, or determined to buy a property that you will soon remodel to accommodate extra relatives? If you require a purchase loan, there are several options to consider, along with their pros and cons:

Conventional mortgage loan

• Allows down payments as low as 3%
• Waives upfront mortgage insurance fee
• Applicable for various property types: Primary residences, second homes, vacation homes, and investment properties
• Offers both fixed and adjustable rates
• Provides loan terms ranging from 10 to 30 years
• Allows cancellation of private mortgage insurance (PMI) with 20% home equity
• Offers loan amounts up to $766,550 and higher in high-cost areas
• Imposes higher interest rates for smaller down payments and lower credit scores
• Typically permits a debt-to-income ratio of up to 43% (preferably under 36%)

FHA home loan

• Requires as little as a 3.5% down payment with a 580 credit score (10% down with a minimum 500 credit score)
• Permits down payment gifts or assistance to cover 100% of down payment and closing costs
• Features lenient income qualifications
• Offers loan terms of 30 and 15 years with fixed-rate and adjustable-rate options
• Allows one to four-unit homes, permitting renting out additional units while residing in one
• Requires a debt-to-income ratio of 50% or less
• Mandates upfront and monthly mortgage insurance premiums (MIP) regardless of down payment
• Does not cancel mortgage insurance with 20% home equity
• Sets lower loan limits compared to conforming loan limits, currently $498,257 in most areas
• Limits properties to primary residences, excluding investment or vacation homes

FHA 203k rehabilitation loan

• Combine financing for the purchase of an FHA-approved home and renovations simultaneously
• Benefit from cost savings by buying a fixer-upper property
• Streamline closing costs and complexities by consolidating both expenses into one mortgage
• Access funds of up to $35,000 for renovations
• Enjoy lenient eligibility criteria for credit scores and income
• Maintain a debt-to-income ratio of 43% or lower
• Mandatory upfront and monthly mortgage insurance premiums
• Subject to FHA loan limits
• Restrictions imposed by FHA on repair costs and types (luxury upgrades are not permissible)

VA home loan

• Exclusive to eligible active-duty service members, veterans, and some surviving spouses
• Offers lower mortgage rates
• Waives down payment and ongoing mortgage insurance requirements
• Accepts lenient credit score qualifications
• Provides 15- and 30-year fixed-rate loans along with adjustable-rate mortgages
• Allows one to four-unit homes with the possibility of renting out additional units
• Requires an upfront funding fee, ranging from 1.4% to 3.6% of the loan amount
• Limits properties to primary residences, excluding vacation homes or investment properties
• Favors a debt-to-income ratio under 41%, although some lenders may accept higher ratios

USDA home loan

• Requires the property to be in a USDA-eligible rural area
• Waives down payment requirements
• Charges low mortgage insurance fees
• Offers below-market mortgage rates
• Accepts credit scores starting at 640
• Has no loan limits
• Imposes household income limits on borrowers
• Only offers a fixed-rate, 30-year term
• Requires a debt-to-income ratio of 41% or less
• Limits properties to single-family residences, excluding multi-unit homes

Multi-generational home equity financing

If you seek funding to remodel or build within your existing property, check out these options that allow you to tap into your home’s equity:

Home equity line of credit (HELOC)

• Allows flexibility to withdraw and repay funds as required during the draw period.
• Secured by home equity, offering more advantageous rates.
• Pay interest solely on the borrowed amount during the draw period, not on the entire credit limit.
• Interest paid on the loan might be tax-deductible if utilized for home improvements.
• Typically less costly than cash-out refinancing, with reduced closing expenses and quicker processing.
• Utilize funds for various purposes, from home enhancements to educational expenses.
• Quicker setup compared to other alternatives, facilitating rapid access to funds.

Home equity loan

• Ensures stable and predictable repayment amounts, unlike fluctuating rates associated with variable-rate options.
• Receive the entire loan amount in one lump sum, ideal for larger projects or significant purchases.
• Interest payments on the loan might qualify for tax deductions when utilized for home improvements.
• Generally entails lower expenses compared to cash-out refinancing, featuring reduced closing costs and faster processing times.
• No restrictions on how the funds are utilized, whether for home renovations or towards a down payment on a second home.

Cash-out refinance

• Secure a new, bigger loan that replaces your existing mortgage; the surplus is dispensed to you as cash-back at closing.
• Cash-out refinance rates slightly surpass traditional mortgage refinance rates.
• Your refinance rate hinges on your credit profile and the extent of cash withdrawn.
• Typically, you can cash out up to 80% of your home equity.
• Given that your new loan surpasses the old one, long-term mortgage interest payments will increase.
• Since mortgage rates are usually lower compared to personal loan or credit card rates, cash-out refinancing may represent a preferable method to finance larger expenditures.

The bottom line

Housing multiple generations of your family under one roof can be more attainable than you think. It’s important to carefully assess your home’s existing footprint and square footage and determine the best areas where an accessory dwelling unit, in-law suite, or other designated area can be built or converted. Weigh the pros and cons carefully, consult with design and construction experts, and talk with a lending professional about the best financing options to accomplish this goal.

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