What to Know About Buying a Home With Your Parents

Are you a first-time home buyer considering purchasing a property with your parents? Or are you an adult looking to invest in real estate with the help of your parents? Either way, you’ll join the increasing ranks of multi-generational homeowners. Buying a home with family members is on the rise. It does have practical, financial, and social benefits, but it’s not for everyone. Review these important factors before deciding to share homeownership with Mom and Dad.

Benefits of Sharing a Home With Parents

Buying a home with your parents could have some pretty sweet benefits. For starters, depending on your budget, it could mean lower mortgage payments for all involved. Or, with your parents’ longer credit history and hopefully stronger financial footing, your combined resources could afford an even larger home or property than you could separately.

Plus, shared ownership also means shared responsibilities when it comes to maintaining the property. Can’t mow the lawn today? Maybe one of the other adults in the home can whack it. Their past ownership experience could benefit you when making important decisions, like sourcing a roofing company or replacing a broken HVAC system.

It could also mean having built-in babysitters and caretakers for those with children. With childcare expenses eating into many families’ budgets, that could be a social and financial win.

Drawbacks to Buying a Home With Parents

Are you hesitant due to potential privacy issues and family conflicts? It’s a valid concern. Depending on the size of the home and your agreement, you could be seeing the parents every single day. They’ll know when you are coming and going, and you’ll know the same with them. It may mean tolerating Dad making coffee in the kitchen at 5 am, or Mom adding her opinion to disciplining the family dog.

You may be sharing common areas, forcing you to agree to interior design and use choices.

But there are other financial considerations, too. Your parents may risk losing their Medicaid health coverage, or the tax benefits may change. And what if one side’s financial situation changes, like you lose your job or the parents suddenly face large medical bills? That could leave someone on the hook for higher housing expenses.

There are ways to mitigate these challenges, some of which we’ll describe below. No matter what, communication is how you maintain a harmonious ownership situation with your family. Make sure you establish clear boundaries and expectations from the beginning. Agree on things like who gets which rooms, how bills will be split, and house rules.

For those entering multigenerational housing, consider setting up separate living spaces. Creating private living areas with separate entrances or adding soundproofing to walls can greatly improve everyone’s quality of life.

Tips for Finding the Right Home

When searching for a multi-generational home, look beyond bedroom count to accessibility and space requirements. For example, elderly family members may prefer a ground-floor bedroom and bathroom. Someone who works from home may need a workshop or a quiet office setting to focus. Maybe Mom is an avid gardener and wants outdoor space for planting.

Figure out what is the right amount of living space to ensure everyone can comfortably gather together. Do you want to share a living room and kitchen? Or should the family have separate areas?

Younger professionals without children who opt to live with parents may prefer separate entrances so they can come and go as they please. But you may be heading into this purchase because you need to closely monitor an aging parent. In that case, you may prefer to be under a single roof.

Finding a multi-generational home that suits everyone’s needs may take some time, but it is worth everyone’s comfort and happiness.

Discuss the financial aspect of shared ownership

Talk about financing options well before you start looking for a home, including joint mortgages or having one party outright buy the house and the other pay rent.

Joint mortgages combine income and invest in property together. This can be a financing tool if both parties are working and want to share the financial responsibilities of homeownership.

Another option could be having one party purchase the house while the other pays rent. This situation can work well if the parents have a higher income or established credit score.

In yet another strategy, some use proceeds from selling existing real estate (a parent’s home or your home) to fund the down payment, while one party seeks traditional financing.

There is no right or wrong option; it’s a matter of weighing what each party brings to the table and what everyone agrees is fair. Whatever that is, get the financial contributions written into a contract so it’s clear to everyone.

Do consider trigger clauses for emergency scenarios. For instance, what if a parent is suddenly incapacitated due to a health emergency like a stroke? If they lose their ability to work or financially contribute, what does that mean for the home and their financial piece?

As you can see, having frank discussions around these topics are crucial to your relationship living together.

Create a Legal Agreement or Contract

You may be family, but buying a home together is a business decision and needs to be treated as such. That’s why you need to draft a legal agreement or contract with your parents.

A legal agreement or contract protects the interests of everyone involved–including siblings who don’t live in the house! What if your parents pass and your brother or sister’s inheritance is wrapped into the home? What does that mean for you?

Start by outlining the ownership and financial contribution percentages of each party involved. This will help avoid confusion and disagreements in the future.

Think about what should happen if anyone wants to leave the business, a.k.a. joint ownership in the home. Establishing an exit strategy from the outset can save a lot of headaches down the line.

Involve a lawyer to ensure that the agreement is airtight and legally binding. And if this move is because your parents need more in-home care, remember to talk about the different powers of attorney.

Don’t let the “we’re family, we wouldn’t do that” excuse stop you from protecting yourself. Pushback from some parties is a sign trouble could be brewing.

Potential Tax Benefits for Both Parties

Did you know there could also be tax benefits for both of you? As joint property owners, you can split the annual tax deductions related to mortgage interest and property taxes, lowering the individual tax bills.

Additionally, if you decide to sell the home later on, you could avoid capital gains taxes on up to $500,000 of profit if you’ve lived in the home for at least two of the previous five years.

Of course, every situation is unique. For instance, if you’re moving into a larger home, that tax bill may be higher even if you split it with the parents. Part of your contribution negotiations may mean only one party reaps the tax benefit. 

Consult with a tax professional or attorney to determine your property tax benefits. However, the potential to save money and build equity together could be a great opportunity for you and your parents.

Maintain Boundaries and Open Communication

Living with others can be a great experience. But even in families that get along well, shared living arrangements can be challenging. Everyone has different social and personal space needs that need respect. A successful living arrangement means maintaining boundaries and open communication within the household.

Before moving in together, start a conversation about what each person is comfortable with regarding sharing space, belongings, and responsibilities. Set boundaries that show respect for others’ privacy and personal space.

You may wish to establish a cleaning and maintenance schedule to keep shared spaces tidy and ensure everyone contributes their fair share. It may make sense to set up a joint bank account for shared home expenses, with an agreement on how to contribute funds and when to withdraw. A regular sit-down to review the housing expenses and bills may help you stay ahead of any financial confusion and conflicts.

When conflicts arise, address them in a calm and respectful manner to find a solution that works for everyone.

Handling Difficult Situations

Let’s face it: disagreements are bound to happen, especially when renovating a home or managing finances with family. It feels personal because it is. So, how do you handle these tough moments?

First, stay calm and collected. This is family, after all. Take deep breaths and avoid getting defensive or aggressive. Listen attentively to the other person’s perspective without interrupting or dismissing their point of view.

Compromising is key. Find common ground and work towards a solution for both parties involved. And lastly, don’t be afraid to seek professional outside help, whether a mediator or financial advisor.

At the end of the day, handling difficult situations with empathy and open-mindedness can lead to positive outcomes and stronger relationships.

Buying a Home With Family

Purchasing a home with your parents opens the door to many benefits and rewards. Sharing mortgage payments is just one advantage; with the right mindset and attitude, the best perk will be the closer bond formed among family members. But it’s not easy to share a home together, so take the time to weigh all factors carefully. Always get professional advice from attorneys and financial professionals about the legal and financial applications behind real estate co-ownership.

Co-owning could be the opportunity to find a home for your whole family – because, at the end of the day, isn’t family what truly matters?