The Sandwich Generation

MCF Intersection

A regular snapshot of the trends, news and research in the world of philanthropy — and its impact on business.


About a year and a half ago, PNC Bank started noticing a trend in borrowers who wanted to finance a brownstone with a rental unit where their parents could live. The bank traditionally would have treated such properties as partial investments and required a higher down payment and loan rate than a single family home would require. But that approach no longer seemed to fit, said Peter Boomer, head of sales. Now, he says, “we look at the same guidelines we would for a single family residence, with lower down payments and lower rates.”

PNC is one of several banks and lenders paying more attention to “the sandwich generation,” people with dependent children and with elderly parents for whom they need to care. While not everyone in the sandwich generation has parents living with them, it is a growing phenomenon: Today, 20% of Americans live in multigenerational homes, where at least two adult generations live under one roof, accounting for 64 million people. In 1980, only 12% of Americans lived this way, according to the Pew Research Center.

“This has been on our radar for the last couple of years,” said Todd Johnson, Wells Fargo Home Lending’s Division Sales Manager, Pricing and Products Lead. In January, Wells Fargo lowered the down payment requirement for duplex buyers to 5% from 15% to 20%. This program is only available for loans that conform to Fannie Mae and Freddie Mac guidelines, but Mr. Johnson noted that loan limits for duplexes in costly areas can be relatively high.

For example, in San Diego a conforming duplex loan can reach $883,300, and in San Francisco, $930,300, Mr. Johnson said. Such loans can have as many as four borrowers, so a couple plus a set of elderly parents can all take out the loan together, Mr. Johnson said.

The program, however, comes with homework: It requires borrowers to take a four- to six-hour online course about being a landlord. What if your own mom and dad are going to be your tenants? You’ve still got to take the class, Mr. Johnson said. It covers issues such as getting insurance and landlord deductions and depreciation.

SunTrust Bank, a national bank based in Atlanta, has many branches in the Southeast, said Sherry Graziano, Head of Mortgage Transformation. In that region, many borrowers are looking for large homes with a bedroom and bathroom on the ground floor for their parents or in-laws, she said. A common approach is for the older couple to sell their own home and use the equity to help make the down payment on the multigenerational home.

If a loan doesn’t allow gift funds to be used as a down payment, Ms. Graziano said, “the older couple may need to become a co-borrower on the mortgage loan as well as an owner named on the title to the property.”

"When you’re waiving rent, in the eyes of the IRS, it’s the same as giving someone money to pay rent"

MCF Intersection

A regular snapshot of the trends, news and research in the world of philanthropy — and its impact on business.


When those older parent co-owners pass away, it can get complicated, especially if the parents have other heirs, says Ms. Graziano. “It may require refinancing the property to cash out the [parents’] equity, or selling the property.” For loans that PNC Bank treated as a single-family home at origination, the borrowers can rent out their extra unit to someone else without penalty if renting parents die or move, Mr. Boomer said., an online lender, rolled out a conforming duplex loan this month that, like Wells Fargo’s, requires only a 5% down payment, said co-founder Viral Shah. The company also provides a mortgage calculator that helps borrowers compute how much home they could afford if the down payment and loan payment were coming from different sources.

For example, if elderly parents bring a down payment but no income to the table, and the younger generation brings income but no assets, the calculator does the math on what they can all afford.

It asks for four inputs: “assets,” “annual gross income,” “credit score” and “ZIP Code.” In addition to the value of the house they can buy, it computes closing costs, likely interest rate and monthly carrying costs.

Steve Sherline, national market executive for private wealth management at MUFG Union Bank, said some of his sandwich generation clients let their parents live in their second home free by using the IRS’s gift tax rules, which allow you to give a gift of up to $15,000 a year tax-free to any person. This way, a couple can gift a set of parents up to $60,000 of rent a year without triggering any federal gift tax, Mr. Sherline said.

“When you’re waiving rent, in the eyes of the IRS, it’s the same as giving someone money to pay rent,” said Lisa Cahill, a certified public accountant who is the co-founder of Realean Real Estate, a brokerage in St. Petersburg, Fla.

A few tips for the “sandwich generation”:

  • If you’re buying a duplex with the intention of renting to your own parents, make sure the lender knows. They may have a program where down payment requirements and mortgage rates are lower if family members are the renters.
  • Lenders mail out one mortgage interest statement to each person on the loan; it’s up to the borrowers to figure out how to divvy that up at tax time, said Mr. Johnson of Wells Fargo. Talk to an accountant or tax specialist about who gets what deduction.
  • Renting to family members at a discount is specifically addressed in the tax code and has to be carefully navigated if the owner wants to take landlord deductions, so discuss with a tax expert.