A couple of young attorneys -- fresh out of law school and carrying a boatload of student debt -- yearned to buy their first home in Virginia. Given that they have two small children, they ached for a five-bedroom place in an area with top-rated schools. The only catch: the high cost of housing in their favored community.
But recently, the couple’s dream finally came true with the help of willing grandparents, who sold their big property in Philadelphia to co-finance a 3,700-square-foot mid-century-modern place in Virginia. The grandparents now live in a spacious suite within the house and provide much-needed child care for the young children.
“This three-generation plan worked out phenomenally well for the whole family. The grandparents wanted more time with the kids and had the means to share the mortgage expense. At the same time, the young couple greatly appreciate the on-site child care,” says Kate Foster-Bankey, the Compass real estate agent who helped structure the transaction.
In many areas, multigenerational housing is creating real estate options for would-be owners who can’t afford to make a purchase on their own. Indeed, the topic is so current that the National Association of Realtors just led a meeting with experts who addressed the subject.
“We’ve been saying intergenerational living ... is here to stay. And it’s here to stay because it’s being consumer-driven,” says Donna Butts, executive director of Generations United, a Chicago-based nonprofit that promotes “grandfamily” situations like the one involving the Virginia couple.
Of course, not all young would-be buyers are interested in co-ownership with their parents. But many buyers are comfortable with the idea of buying a home suitable for renting out an extra room to an unrelated tenant.
“The capacity to have at least one housemate in your place could prove a very welcome way to partially offset your mortgage payments with some rental income,” says Merrill Ottwein, an Illinois real estate broker who specializes in helping buyers who are relocating.
What sort of floor plan works best to accommodate a roommate? Ottwein recommends you look for a place with a bedroom suite that includes a private bath. Also, a separate, outside entrance to the suite is ideal.
Here are a few other pointers for those considering a first-time home purchase:
-- Look for a mortgage that keeps you within your financial comfort zone.
Many homeowners who faced foreclosure during the recession of 2008 had used an adjustable-rate mortgage to finance their purchase. They were able to qualify for an introductory “teaser rate” on the home loan. But once the ARM adjusted upward, they were in over their heads.
Due to the high level of current mortgage rates, more first-time buyers are again considering an ARM. But Ottwein, a past president of the National Association of Exclusive Buyer Agents (naeba.org), is skeptical that an adjustable would be a prudent choice for most first-time buyers.
“A fixed-rate mortgage gives you certainty your monthly principal and interest payments will remain constant for as long as you keep that loan. But with an ARM you have interest rate risk, even if it’s several years off,” Ottwein says.
He also warns all buyers against taking any mortgage (fixed or adjustable) that feels uncomfortably large.
“People who are house-poor suffer a lot of fear and anxiety about making their payments, which is a terrible way to live,” Ottwein says.
Even in the current era of tight credit, many first-time buyers who make it through the mortgage preapproval process are surprised to realize they’re qualified for a larger mortgage than they’d anticipated. To avoid over-borrowing, Ottwein suggests you set your own upper limit rather than letting the lender do so.
“Decide on your ceiling before you go looking at houses or condos. If you need a reminder, write that number on an index card and carry it around with you,” he says.
-- Pick an energy-efficient place.
Some expenses tied to homeownership, such as taxes and insurance, can’t be avoided. But home shoppers can more easily contain their utility bills if they choose a property that’s well insulated and has substantial, double- or triple-pane windows.
Before they commit to buying a particular home, Ottwein suggests that buyers ask their home inspector to evaluate the energy efficiency of the property they’ve chosen. He also recommends they ask the current owners for copies of their utility bills.
In addition, Ottwein advises buyers to update themselves on the topic of energy-efficient housing through online resources. One website that provides an array of information on the topic, energystar.gov, is sponsored by the U.S. Department of Energy, along with the U.S. Environmental Protection Agency.
-- Make proximity to friends a high priority.
If you’re like most young buyers, your social life remains of vital importance to you. But even though you may outpace your friends in achieving homeownership, you won’t want to move to an area that makes it extremely difficult to keep up your social life.
In an age of texting and email, it’s not necessary to live around the corner from friends to stay in close touch. But if possible, you’ll want to avoid buying a property many miles from friends, even if that’s your most affordable option.
“You won’t be happy if you’re isolated from your friends. So don’t buy a house so far away that you’ll strain these important relationships,” Ottwein says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)