Downsizing in Retirement: Why Some Families Are Choosing Multigenerational Homes

For many homeowners, downsizing has traditionally meant selling a larger family home, purchasing a smaller property, and preserving some of the remaining equity for retirement. Today, higher home prices, elevated mortgage rates, moving expenses, and potential tax consequences are changing that calculation.

According to a recent Realtor.com report, some retirees are choosing a different path: purchasing a larger multigenerational home with their adult children. In these arrangements, older homeowners may contribute accumulated home equity while younger family members contribute income and share ongoing housing expenses.

Why Downsizing May Be Less Financially Attractive

Downsizing can still be a practical choice, but the financial benefit may be smaller than some homeowners expect. A smaller home may not cost substantially less than the property being sold, particularly in areas with limited housing inventory and strong buyer demand.

Higher Home Prices

In many housing markets, entry-level and smaller homes have experienced significant price appreciation. After paying selling costs, moving expenses, and the purchase price of a replacement property, retirees may preserve less equity than originally anticipated.

Mortgage Rate Lock-In

Many existing homeowners have mortgage interest rates that are lower than rates currently available in the market. Selling a home may mean giving up that existing financing and obtaining a new mortgage at different terms. Whether a move is financially beneficial depends on the homeowner’s available equity, loan balance, income, purchase price, and overall financial circumstances.

Capital Gains and Moving Expenses

Homeowners who sell a primary residence may qualify to exclude a portion of their capital gain when applicable federal requirements are met. However, longtime homeowners with substantial appreciation may have gains exceeding the available exclusion limits. Real estate commissions, repairs, moving expenses, and other transaction costs can also reduce the amount of equity available after the sale.

Homeowners should consult qualified tax, legal, and financial professionals before making decisions involving capital gains, estate planning, or the transfer of property.

How Multigenerational Housing May Help Families

A multigenerational home generally includes two or more adult generations living together. For some families, purchasing a home together may provide greater buying power and allow housing costs to be shared among household members.

Retired homeowners may be able to contribute proceeds from the sale of an existing property, while adult children may contribute employment income toward mortgage qualification and monthly expenses. This structure may help some younger buyers enter the housing market sooner, depending on their qualifications and the selected loan program.

Potential Benefits

• Combining household income and available assets may increase purchasing capacity.
• Family members may share mortgage payments, utilities, maintenance, and other household expenses.
• Older family members may receive assistance with daily living or future caregiving needs.
• Younger family members may gain an earlier opportunity to build home equity.
• A larger home may provide private living areas while keeping family members nearby.

Potential Costs and Responsibilities

A larger home may also result in higher property taxes, homeowners insurance premiums, utility bills, maintenance expenses, and repair obligations. Families should evaluate both the initial purchase costs and the long-term affordability of the property.

Multigenerational living is not appropriate for every household. Privacy expectations, caregiving responsibilities, financial contributions, and long-term plans should be discussed openly before making a purchase.

Shared Homeownership Requires Careful Planning

When family members purchase a home together, clear written agreements can help reduce future misunderstandings. The mortgage obligation and the ownership shown on title are related but separate legal matters, and each may have significant financial and estate-planning consequences.

Questions Families Should Address

• Who will be listed on the mortgage and property title?
• How much will each person contribute toward the down payment?
• Who will be responsible for monthly mortgage payments and household expenses?
• How will repairs, improvements, taxes, and insurance be divided?
• What happens if someone wants or needs to move?
• How will divorce, disability, job loss, death, or caregiving needs be handled?
• How will the property be treated for inheritance and estate-planning purposes?

Before completing a multigenerational purchase, families should consider consulting a real estate attorney, tax professional, estate-planning professional, and licensed mortgage professional. These advisers serve different roles and can help identify issues that may not be addressed through the mortgage process alone.

Mortgage Considerations for Multigenerational Homebuyers

Mortgage eligibility generally depends on factors such as credit history, qualifying income, existing debts, available assets, occupancy, property type, and underwriting requirements. Adding borrowers may increase the income available for qualification, but their debts and credit profiles may also affect the application.

Funds contributed by family members must meet the documentation requirements of the applicable loan program. Depending on the transaction, funds may be treated as the borrower’s own assets, eligible gift funds, or another acceptable source. Documentation requirements vary by lender and loan program.

Some properties designed for multigenerational living may contain accessory dwelling units, separate kitchens, multiple living spaces, or features that affect property classification and appraisal review. Buyers should discuss the property configuration with their mortgage professional early in the process.

Key Takeaways for Retirees and Their Families

• Downsizing may not produce the same financial benefit in every housing market.
• Existing mortgage terms, home appreciation, transaction costs, and potential taxes should be considered.
• Multigenerational housing may allow families to combine equity, income, and household resources.
• Shared ownership can create legal, financial, and family responsibilities that should be addressed in writing.
• Mortgage approval and available terms depend on each borrower’s qualifications, the property, and underwriting approval.

Conclusion: Compare the Options Before Making a Move

Downsizing remains a sensible retirement strategy for many homeowners, but it is no longer the only option. For some families, purchasing a multigenerational home may offer a practical way to share expenses, support younger buyers, and plan for future caregiving needs.

The right decision depends on the family’s finances, housing needs, relationships, long-term plans, and professional guidance. Comparing the likely costs and benefits of downsizing, remaining in the current home, or purchasing together can help families make a more informed decision.