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My MIL bought a house in our state (TX) and we all moved in, but she has treated it like my (and my husband's) house from day one. This means that I pretty much get to decorate it however I want but she is consulted on repairs and renovations. She did this for two reasons: so that she could care for her only grandchild (DS) and because she sold a piece of property and wanted to purchase something else.

She was able to purchase the property out-right, so no mortgage. We pay taxes, utilities, service contracts. We split repairs and do a lot of that work ourselves.

We all shopped for houses together (DH and I lead the hunt) and we focused on houses with IL suites (didn't find any) or garages that can be finished (haven't done that yet), or a 4th bedroom with a private bath and a game room where she can get away from us.

But the only reason it works is personality: she and I are both introverts and value our down time. She loves to cook and hates to clean and I don't mind cleaning and work full time (so she cooks week day meals). We also communicate well and give each other our space. She considers this our house, and the house that she and FIL own (in NJ) is hers. (FIL hasn't moved in with us because he's caring for his own mom in NJ...)

We set this up as a 6 month temporary arrangement, and it's been 2 years.

ETA: the biggest thing to work out is boundaries and expectations. Will she be expected to just walk in and join you at random times? Will she feel isolated from the family, or like she needs an invitation to come over? Will meal times be shared or only for your nuclear family? For us, since we share the house, that's time with DS. Since DH and I work full time and he works long hours, she basically hands DS off in the evening when I get home from work and goes upstairs to chill. DH and I usually handle DS all weekend and she can join us or not as she chooses.
Also something to keep in mind: she and FIL lived with her mother for years and she's had renters live with her before, so she's very comfortable talking about boundaries and giving us our space.

ETA2: as for her contributing rent. If you're planning on getting a mortgage and will rely on her "rent" to afford a bigger house, I believe it will have to be a legal apartment from the mortgage company's perspective. There are also rules about "gifts" for down payments and documenting those. Just be aware that you'll want to talk with your lender early in the process so that you are not disappointed.

@youboots: ok yes the in law suite we built has 1/2 of the cash going to my sister upon death. Ie she’ll get a smidge more then me out of my parents money

I have several friends and inlaws who have similar arrangements. The keys to success is a door that shuts that everyone respects and a separate refrigerator/kitchen. The hardest part seems to ve when people are expected to live completely together. I've never seen it work well.

For finance, get a lawyer. Develop a contract and have your mom update her will. Be sure to include things like household repairs, landscaping, and common goods.

My mom currently lives with us. I was able to find a home that had a second kitchen and laundry room which really helps. I purchased the house myself. At first we were going to purchase together but she decided she may want to have her own home again in the future. She does pay me a small monthly amount and watches the kids about 15-20 hours a month. My situation is a little different in that my mom moved in with me when my husband unexpectedly passed away a year ago and at the time I had a 3 month old, 2, and 3 year old. I’m glad now that we didn’t purchase together because I get to make all the decisions about the house, she does give me input which is great. Also really think about your personalities and if you’ll be able to work things out if there’s conflict. It can be difficult living with a parent.

what does your DH think about this? The only thing about this living situation is...there really isn't any backing out. If it isn't working out say, after a year, what happens?
I think the best case scenario would be a true in law apartment which has its own separate entrance. Remember, everything needs to be accessible too, if you both are envisioning her living long term in this house. Like a really rambling ranch with a guest house, etc. Will she come on all vacations when you travel as family? I think honest conversations need to be had about what this will look like when the novelty of it wears off. And what happens if she decides to move out?

I think this could be great. If would be relying on her to make your mortgage payments, what happens if it doesn't work out or if she passes? Would you rent out the space to someone else? Or could you afford it on your own? Hard questions to think about, but it's probably critical to make sure you don't lose the house if things don't work out.