We are closing on a purchase of a new home in two weeks and making a six-figure down payment and financing the rest with a mortgage. We have not sold our current home yet and it is unlikely to sell prior to the March 1st FAFSA deadline. So technically, we will own two homes during the FAFSA application process. But once we sell our current home, we will use the equity to pay off most or all of the mortgage on our new home. How do I report this on FAFSA? I would hate to have to consider our new home as a “second home” with its equity considered part of the personal assets calculation. Yet technically, I don’t see any way around it. Is there some exception to the “second home” rule in the situation where the primary residence was not sold prior to the purchase of the new primary residence? I wish my timing of this transaction were better, but it is always easier to buy a home than it is the sell one!
Here is what I would try to do (note, financial gymnastics for FAFSA purposes may not result in any additional federal aid or subsidized loans):
- I would use the six figure savings now to pay down the current home loan,
- Submit the FAFSA,
- Take a HELOC out for the amount of the desired six-figure down payment for the new home,
- Close on the new home, sell old home, pay off most of new home with sale proceeds.
Have you run any NPCs to see if you even qualify for aid? What schools is your child applying to? IF the schools don’t meet need, are instate publics, or OOS publics or privates that don’t give great aid, this worrying may be for naught.
Often people worry about these things only to find out that they wouldn’t qualify for aid anyway.
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would hate to have to consider our new home as a “second home” with its equity considered part of the personal assets calculation.
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I’m not sure it makes much difference. What difference does it make if the $100k down payment is equity in a second home or sitting somewhere else???
The equity in second homes is not punished or calculated any worse than that same money sitting in an account.
or am I missing some point
which house will have the most equity? That is the one you want for your primary residence when you submit the FAFSA.
Then the equity in house number two won’t be very much…and really it’s the equity that is assessed.
But I agree with others. Need based aid is heavily weighted towards income. If you can even afford to won two houses at once, it is very possible that your income would put you above the income threshold to qualify for need based aid.
It seems to me that all you’re doing is taking one asset (100K) and turning it into another asset (your new home- 100K downpayment, the rest financed). It’s not as though your current home magically is worth less because you’ve bought something new, and it’s not as though you can hide 100K- it’s either an asset or it’s not.
Run a quick calculator- you may be worried for nothing.
Current home is free and clear, so paying off a mortgage is not an option.
Well…then live in that home until after your FAFSA is filed. You likely have more equity in that home…so maintain it as your primary residence. The equity in your newly purchased home will then be an asset.
But really…if you have $100,000 to put down on a new home, your income might be too high to get need based aid, or much of it…anyway.
My EFC last year was only $10K because my assets were tied up in a small business. I sold that business and am putting the proceeds into the downpayment of the new home. My income and assets qualified us for $10K in aid last year from UC Davis, but I think that goes away if I can’t show that those business assets are now invested in a primary residence. And in case you are wondering: Yes, the new house is larger and more expensive than the current one. We are moving closer to my 92 year old mother and need a house large enough for her to move in with us if/when she gets to the stage of not being able to live on her own. It is tough trying to provide for elderly parents and college-aged children at the same time. Just trying to get as much help as I can.
If you have $100k or more in cash, how can you possibly qualify for need based aid?
“If you can even afford to own two houses at once”… I can’t. I had to get a commercial loan and say that the new home will be a rental so that the potential rent income would qualify me for the loan. It may well turn out to be a rental if we can’t sell our home right away, so I have a good conscience about it!
“If you have $100k or more in cash, how can you possibly qualify for need based aid?” I am bit surprised to see that question, but maybe you have never filed FAFSA. FAFSA only counts 5.64% of liquid assets towards EFC. But as I said in the OP, that $100K is going away in two weeks. My hope is to find a way for it to also disappear on the FAFSA application… but it doesn’t look good for me. I think my best hope is to plead with the Financial Aid officer at Davis and ask for an adjustment of the need-based formula due to my situation.
It is $100k at the minimum, it could be $999,999.
That $100,000 is NOT disappearing when you buy that SECOND home. The asset is simply being moved from your bank account to the equity in your second home.
Also, I’m not sure I understand your thought process. You sold a business. The gain from that businees will not go away simply because you buy a house with the profits.
And it is your choice to buy a larger home. Yes, I understand this is future planning so that you can help a,parent who is aging. But colleges do not provide need based aid so that parents can finance real estate transactions. That is your choice.
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Follow me on this… if I own a primary residence free and clear worth $250K and have $100K in the bank, my personal assets are $100K. If I sell my $250K house and buy a $350K house and use up all the money in the bank, my personal assets are $0. That is basically what I am trying to do, except that my $250K house won’t sell before I buy my $350K house. So the timing of these transactions are not in my favor. But I was hoping that someone may have experience with this. After all, it is very rare that house purchases and sales are perfectly timed. It would be even worse if I sold first and bought later. Then I would have all $350K sitting in the bank while I waited to close on the new home.
thumpert… I really resent your use of ALL CAPS in characterizing our new primary residence as a SECOND home. It only happens to be technically a “second” home temporarily while we are in the process of selling our current home. If you don’t have any helpful advice, then at least try to avoid shouting your opinions at me.
I think you are going to have a hard time presenting the new house as anything but a second home while you sell the first, especially as you have a mortgage listing it as a second home. I do think your best course will be to ask for professional judgment. You may not be able to do that until you do sell the current home and pay off that mortgage.
Live in your first house…the one that is paid for. The second home will have only $100,000 in equity, and that will be assessed at 5.6% for FAFSA purposes. Just don’t mive until after you file the FAFSA.
If you move to the second home…all of the equity in your current home will be assessed because that will become your second home.
So just wait to move.
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I sold that business
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So…how is that showing up ?? Is that considered income?
How much did you sell the business for?
The 6 figure down payment / cash in bank from sale of business could be way more than $100k.
Do you really need $10k aid from Davis?