Homebuyers

Mother-Daughter Homes: What To Know About This Multigenerational Living Arrangement

This Mother’s Day, millions of Americans are celebrating their matriarchs, and some may even be considering moving back in with them. With home prices stubbornly high and caregiving demands on the rise, multigenerational mother-daughter homes may be a viable answer.

In general, multigenerational living is becoming a more popular financial strategy. About 14% of homebuyers purchased a multigenerational home last year, according to the National Association of Realtors.

This was driven largely by Gen X and older millennials navigating the dual pressures of raising children while caring for aging parents.

“It’s the sandwich generation,” said Eva Melgarejo, a Long Beach, Calif.-based loan consultant at New American Funding.

Melgarejo is seeing more young buyers who are starting families choosing to stay with older parents to save money. The parents are helpful with the children. And years later, the young buyers have grandparents who need more care for themselves.  

What is a mother-daughter home?

The term “mother-daughter home” is more flexible than it sounds. It describes a setup where two generations share a property but maintain some separate living space.

Think of a studio addition with its own entrance, or a converted basement with a private door. Common areas like the kitchen and living room are typically shared.

In some cases, families opt for an accessory dwelling unit (ADU), which is typically a smaller, detached home on the same lot. It may even be a duplex or multiplex that keeps everyone on the same property.

The advantages of mother-daughter homes are more than just saving money

There are plenty of advantages to purchasing a mother-daughter home and they’re not all financial. Families can pool their incomes to qualify for a larger home, split utility costs, and avoid the expense of maintaining two separate households.

Caregiving is often a major driver. Round-the-clock, in-home care for an aging parent can cost about $25,000 a month, according to A Place for Mom, which helps seniors and their families navigate the aging journey.

That kind of expense may make the cost of renovating a home for an aging parent look modest by comparison.

Living together also helps preserve and grow generational wealth. A home is often a family’s most valuable asset and often appreciates over time. So, a single-family home kept in the family for decades is likely to be worth more after 30 or 40 years.

Families who stay together instead of downsizing preserve that long-term asset.

The disadvantages of mother-daughter homes

Multi-generational living isn’t without its challenges. A lack of privacy is a common concern, particularly for adult children who are used to living independently. Sharing space, even with separate entrances, may require ongoing negotiation and compromise.

The emotional demands of caregiving are also real. Living with and caring for an aging parent, particularly one with dementia or other cognitive decline, can be a full-time responsibility that can take a significant toll.

“You have to put in a budget for mental health,” said Melgarejo. “It is extremely challenging.”

Despite the challenges, many families find that the tradeoffs are worth it, both financially and personally.

The home that negotiates shared kitchen space is also the one where grandchildren grow up knowing their grandparents.

For families navigating the pressures of today’s housing market, a mother-daughter setup keeps loved ones close while building generational wealth together.

Home loans that may help you buy a mother-daughter home

Making a mother-daughter home work often requires some renovation. Whether you’re looking to convert an existing space or add an addition, there are several financing options you may want to explore.

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) allows homeowners to tap into their equity, leaving their original mortgage untouched. This is an especially appealing option for homeowners who locked in a low interest rate a few years ago.

The loans work similar to a credit card in that borrowers are approved for up to a certain amount and can take out what they need during the draw period, usually five to 10 years. Then they pay it back with interest only on the amount they used over the next 10 to 20 years.

Homeowners may be able to borrow up to 85% of the home’s equity, depending on the lender. However, interest rates are typically higher than for a primary mortgage but are generally lower than for a personal loan.

Cash-out refinance

A cash-out refinance is another popular option that replaces a homeowner’s existing mortgage with a larger one, allowing homeowners to tap their equity directly. They can then pocket the difference and pay the mortgage back every month. Lenders typically recommend keeping at least 20% equity in the home.

Renovation loan

A renovation loan goes a step further. It's based on the projected value of the home after improvements are completed, not its current value.

Say a homeowner needs $150,000 to add an ADU or studio addition, which would take the home’s value from $400,000 to $600,000. A renovation loan could be sized against that higher number, making more financing available than a standard cash-out refinance would allow.

Funds go directly to the contractor as work is completed, not directly to the borrower.

Eva Melgarejo NMLS # 152876