Buy a Home prior to FAFSA or Anytime

Paying for College
1

<p>I am a parent of a senior in high school and appreciate any input this forum can provide in assisting me with sound financial recommendations.</p>

<p>Currently I live in Texas and just sold my home placing the funds into a savings account. I am leasing back my home until July 2014 and looking to buy a home in Florida where she and I will reside while she attends college. I currently work making less than $60,000 and am a single parent with my daughter living with me 100% of the time and has since my divorce 14 years ago.
My daughter will attend a community college to save on out of state tuition then transfer to a university in the same city.</p>

<p>Here are my questions:</p>

<ol>
<li>In Jan 2014 we will apply for FAFSA however will not move June/July 2014 to Fl.
Is it a smart decision to buy a home prior to our move, her completion of her senior year of high school or will that work against us for financial aid?</li>
<li>I will be seeking employment prior to our move however I may not get a job immediately, is that an issue or do I need to push hard to gain employment prior to our move again for securing better financial aid?</li>
<li>Is the recommendation to buy a Fl. home prior to applying for FAFSA or can we buy a home anytime during the 2014 year and it not matter for aid? </li>
<li>Prior to apply for FAFSA, Jan. 2014, should I move the savings funds (house funds less than $100,000) to a family member for a better chance of getting financial aid?</li>
</ol>

<p>Thank you to all who take the time to advise :)</p>

2

<p>Prior to apply for FAFSA, Jan. 2014, should I move the savings funds (house funds less than $100,000) to a family member for a better chance of getting financial aid?</p>

<p>What do you mean by “move the savings funds to a family member”? If you mean have a family member temporarily hold the money for you in his or her name so that it doesn’t show up on your list of reported assets, that would be fraud. If you mean give the money to a family member, then you have to be prepared to never see it again, because once a legal gift is made the recipient is under no obligation give the money back or do anything for you in exchange.</p>

<p>The question should be, does FAFSA treat home equity and money in a savings account as different kinds of assets, and if so in what way.</p>

3

<p>The FAFSA formula does not use home equity as a factor. You will have an asset protection allowance that depends on your age, and the value of your savings above that amount will be assessed at 5.6% (someone will correct me if I got that % wrong). So do print out the current formula, and work through it on paper to see what the numbers look like for you and your daughter. The formula changes a bit each year, and the 2014-2014 formula will be available soon. Until then, this will give you a reasonable estimate.
<a href=“http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf&lt;/a&gt;&lt;/p&gt;

<p>FAFSA does not give your daughter any money. The formula simply determines whether or not she will qualify for certain kinds of federal aid. Given your income, what she will be eligible for will be a federal student loan of $5,500 for her freshman year. That probably won’t go very far when it comes time to pay out-of-state tuition and fees at her community college. It may make more sense for her to take a gap year while you establish residence for tuition and fees purposes in FL. Check the residency policy at the CC that she is interested in to find out how long you (the parent) must live in FL before she is considered a resident.</p>

4

<p>

</p>

<p>I don’t think anyone has addressed this yet. Regarding income, generally need based financial aid formulas take into account your earnings for the prior year. So if your daughter is entering college in fall 2014, it would be calendar year 2013 income that is considered for financial aid purposes. Then the next year (for fall 2015), they will be looking at 2014 income. Your employment status per say does not make a big difference in financial aid, it is that income number that counts. Now… if a college knows you are unemployed, thus likely earning less than you did the previous year, in some cases they may increase the need based aid they provide if you tell them (but not always).</p>

5

<p>and if you made a profit on selling that house, that will count as income for 2014 , plus the money in the bank (on the day you create your FAFSA) will count as savings. So if you are going to buy a house, you may want to do it before you do your FAFSA in Jan/Feb ( assuming you use your savings to pay for it, otherwise it doesn’t make any difference).</p>

6

<p>If you buy a house in Florida before you move from Texas, wouldn’t the house in Florida be viewed as a second home or at possibly an investment?</p>

7

<p>

Assuming you meet the criteria, the gain on the sale of a personal residence is not taxable.</p>

8

<p>The first question is how much does the CC in Florida cost? It may be that your EFC will be higher than the total cost of the CC based only on your income. With $60k income your FAFSA EFC may be around $12k-15k - is that higher than the COA at the CC your daughter will attend? If so she will probably only be eligible for student loans and your cash vs. home ownership status will not matter. BTW a single parent has a far smaller ‘excluded savings’ amount (around 14k I think).</p>

9

<p>The cut-off date for applications at most CCs is the day that the clad the student wants to take starts. So check that out. Unless the CC has early application cutoffs for specific programs, you can wait until you are settled in FL to file the FAFSA.</p>

10

<ol>
<li><p>Your gain on the sale of your house will not be taxable (there’s a $250,000 exclusion) unless you’ve sold 2 homes within the past 2 years.</p></li>
<li><p>You have an age-based asset protection allowance. If your assets are $100,000 from the sale of your house, your allowance will be around $12K. That means the remaining $88K is counted at the rate of 5.64%, which adds $5000 to your EFC. In my opinion it’s not worth buying another house just to save $5000 in EFC; at a minimum you can invest that money at 1% and get a quarter of it back in interest.</p></li>
<li><p>Your total EFC should be around $12,000, but you need to do the math of the worksheet to find out for sure.</p></li>
<li><p>The gift tax exclusion is $14,000. A gift is irrevocable. </p></li>
<li><p>If you want to use some of your cash for your daughter’s college, figure out how much you’ll contribute over 4 years and open a 529 account for her with that amount invested. Your returns might be better than the 1% you’d get in a savings account.</p></li>
</ol>

11

<p>Thank you to everyone for such a great response filled with helpful information - WOW!</p>

<p>happymomof1 ~ The EFC formula link you provided is GREAT Many THANKS!</p>

<p>intparent ~ thanks for the heads up on the employment possibiity plug, I’ll ask anything to save!</p>

<p>Boise1 ~ Good question and I know the answer as far as qualifying for in-state vs out of state tuition…yes you have to prove you live there 51% of the year however not sure how that is viewed for FAFSA… </p>

<p>vballmom~ I really like the way you explained it with examples THANKS! </p>

<p>So in summary it appears rushing to buy a home in Florida before year end while still living in Texas is NOT necessary because adding approx $5000 in EFC in the long run verses paying a mortgage for the 6-7 months I am not living there makes little sense.
Am I understanding that correctly?
Due to the age based asset protection (which btw I am 50) I am ok having assets in my savings account under $100,000 from the sale of my home. Correct?</p>

<p>Sorry guys this is totally new to me so forgive me ignorance… as a single parent my age I can’t afford to make mistakes.</p>

12

<p>The FAFSA for 2014-2015 will be based on your income for 2013 and your account balances on the day that you file in any investment accounts or bank accounts or even in a box under your bed. The only exclusions from that category are your IRA/401k/other specifically designated retirement accounts. There is an adjustment for state taxes (details in the formula instructions) based on the state you were living in during 2013. Where you are living, and when, in 2014 won’t matter at all for the FAFSA for 2014-2015.</p>

<p>You are correct that a fraction of your assets (in the savings account or in other accounts that need to be reported) will be protected based on your age.</p>

13

<p>You’ve gotten some good advice here, so I am really just reiterating most of it.</p>

<p>In some situations, it could make a huge difference in financial aid–enough of a difference that some families in your situations would have the student take a gap year. Some years ago, my friend’s husband left his job, and got a big payout that he immediately parlayed into a business opportunity. No matter what they said, neither school that the two students in the family were attending would give a penny break on that payout. </p>

<p>In your case, however, there are a number of factors in the picture that make it so that it may not matter much or at all what you do. First of all, very few schools meet full need as defined by the FAFSA EFC, so even if your EFC is higher, what your student gets is not going to be much different. The only entitlements from the federal government are PELL and Direct loans, and with more need, one can have interest deferred till graduation on student Direct loans. With a $60K income, how much you will get from PELL is not going to be a whole lot as the max is $5600 with a zero EFC. Also, the cost of the community college is not going to be that high, you are not looking at big dollar stakes here. The reason I put it that way, is that the stakes regarding buying a home and other financial issues is far more important than the dollars you might get finnagling things to get a little more college money. It’s easy to get penny wise and pound foolish when too intent on getting the most out of a system., and I’ve seen a lot of that too. To take certain risks for just a few thousand dollars that could lose you far, far more makes no sense. </p>

<p>As for your employment situation, though your ncome for the prior calendar year is used, if you are unemployed during the process let the school know. The fin aid officers can make a judgement as to whether you are a displaced worker at the time being and disregard some or all of your prior year earnings. That usually takes a period of time in terms of being unemployed, and as a professional judgement issue, will differ from school to school and aid officer to aid officer. BUt you do want that fact in the picture so that if it makes a difference in a scenario, it is so noted.</p>

<p>If it looks like there are two many factors up in the air, an unsold second residence in TX, OOS status in FL, maybe your student can qualify for Bright Futures in FL–look it up, check it out, it might be a good idea for the student to take a gap year as my friend’s two kids did. Look at the numbers. But do not do something in haste, absolutely nothing illegal, like stash your money with a family member, buy a house in a hurry, sell your house to hastily to get a low EFC. The ramifications of those actions can be far more costly and troublesome for a longer time than your chlld’s college.</p>

14

<p>cptofthehouse ~ You have really helped clear a few lingering questions for me and the waters are a bit clearer now - thanks!
I have heard that schools do not necessarily meet full “need” as defined in FAFSA formula and to ask that question when deciding which college/university to attend. </p>

<p>Agreed community college is not a deal breaker hence the reason for applying esp. with out of state tuition. I have thought and discussed with my daughter the option of a “gap year” so we are on the same page however again I refer to the savings of community college vs university. My daughter is an A/B student so I am not too concerned of acceptance into a university (although I am not blind that she is not the 10%ers). </p>

<p>Just to clarify…I sold my home last month and currently lease it back until our move in 2014. I no longer own a home and selling early was part of my plan to make buying a home in fl a smoother transition.</p>

<p>Thank you again EXCELLENT help!!</p>

<p>happymomof1 again your suggestions and help is greatly appreciated!!</p>

15

<p>Beburke, "I have heard that schools do not necessarily meet full “need” as defined in FAFSA formula and to ask that question when deciding which college/university to attend. " is the understatement of the year! . Most all school, the vast, vast majority of schools and nearly every single community college and state school (only 2 exceptions I know in the whole US) do not meet full need as a rule. The only times they do, is if the need is low enough that federal PELL, and entitlements cover it all. When it comes to doing out their own money, there simply is not enough there to meet full need. </p>

<p>I suggest you run some numbers through the FAFSA estimators we have here to get some sample EFCs and see if you are even PELL eligible. Because if you don’t get PELL money, all that’s usually there for the state school are the Direct Loans. Very little if any other aid money and if so, in piddly amounts. Maybe some merit if your DD is a top student in their college. Since she will be graduating from one state and going to school in another, it makes it tough for any state aid to kick in too. Florida has Bright Futures, but I think you have to graduate from a FL high school to be eligible for that money. </p>

<p>So your EFC is really the least you can expect to have to pay after all aid kicks in. If that number exceeds the cost of the school, you get zip other than merit scholarships or loans. Your DD can borrow Direct Loans even without need–the interest just isn’t subsidized while she is in school whereas with need it would be, but that amounts to about a couple of hundred a year, given that $5500 is the most she can borrow freshman year up to $7500 senior year. </p>

<p>Some tips–if she has any money in her account, open a joint account with her with your name and ssn first, so that the assets are attributed to you , not her on the FAFSA. Students get hit a straight up 20% of assets in the account on the day FAFSA is filled out with NO allowance. You get a protection allowance and only 5.6% is assessed as a parent. ALso make sure you check your accounts and you file the FAFSA on a day after big bills are paid. Don’t file when you have some money sitting there that is earmarked for a payment in the near future. Prepay if you have to do so. In fact, maybe prepay taxes, if it makes a difference. But make sure you do your numbers and see if it even makes much difference. No sense in doing a bunch of financial gymnasics and contortions when you aren’t going to get much more. COuld cost you more in complications. </p>

<p>Good luck with your move and your DD’s college plans.</p>

16

<p>cptofthehouse: “No sense in doing a bunch of financial gymnasics and contortions when you aren’t going to get much more. Could cost you more in complications.”
Never was much into gymnastics LOL
Hey thanks again for offering great ideas, suggestions and recommendations!!
I’ve got some weekend homework :slight_smile:
Keep doing what you are doing…it honestly makes a difference!</p>

17

<p>I know the gain from the sale of your home might be untaxed, but wouldn’t it still be ‘untaxed capital gain income’ and need to be included on FAFSA? It just seems common sense since they want all your other untaxed income. I am also basing my answer on this information:</p>

<p>i. Any other untaxed income not reported elsewhere. This can
include disability, worker’s compensation, interest income on
education IRAs, untaxed portions of Railroad Retirement benefits,
black lung benefits, refugee assistance, the untaxed portion of capital
gains, and foreign income that wasn’t taxed by any government and
isn’t part of the Foreign Earned Income Exclusion.</p>

<p>This is from the government website Filling Out the FAFSA, Chapter 2.</p>

<p><a href=“http://ifap.ed.gov/fsahandbook/attachments/1213AVGCh2.pdf[/url]”>http://ifap.ed.gov/fsahandbook/attachments/1213AVGCh2.pdf&lt;/a&gt;&lt;/p&gt;

<p>If someone finds a good source that says capital gains from home sales
don’t have to be reported, please post as I am definitely not selling for
the next five years because of this.</p>

18

<p>There is no “untaxed capital gain income”. The gain on the sale of a house, if under the exclusion amount of $250,000/$500,000 and within the other rules (owned the home for 2 years, have lived in the house 2 of the prior 5 years, etc) is not reported on your 1040. FAFSA takes AGI directly from your 1040. Other untaxed income reported on FAFSA includes income such as child support, untaxed pensions, Black Lung benefits, railroad retirement payments, etc as noted above. It does not include capital gains from the sale of a primary residence.</p>

<p><a href=“https://fafsa.ed.gov/fotw1314/help/faawsbp.htm[/url]”>https://fafsa.ed.gov/fotw1314/help/faawsbp.htm&lt;/a&gt;&lt;/p&gt;