<p>I have purchased my investment ( rental ) property using HELOC .
Can I deduct that debt from the value of the property to come up with net value of my investment in FAFSA question #89 ?
BTW , it has been refinanced and now stands as a first mortgage .
I could get a record of where that money was spent of course .</p>
<p>Are you saying your borrowed against the equity in your primary home to get money to buy an investment property? I think since the loan is secured against your primary home you would subtract it from the value of your primary home, and not from the value of the rental property (which unfortunately does not help you at all for FAFSA, but would for CSS Profile) How exactly is the question worded (I don’t have one up right now)?</p>
<p>" The net worth of your parent’s current investment is the amount left over after deducting the debt from the value of the investment "</p>
<p>" Investments don’t include the home your parents live in "</p>
<p>" Investment value means the current balance or market value of these investments as of the the day you submit your FAFSA . Investment debt means only those debts that are RELATED to the investments "</p>
<p>That’s unclear to me. I think you could make an argument for subtracting the value of the loan from the value of the property, even though the loan is secured against a different property, if it was taken out for the express purpose of purchasing this investment property. But I’m not 100% sure. Hopefully one of the finaid experts will chime in here.</p>
<p>I am going to post my opinion and hope that Kelsmom sees this.</p>
<p>Do you have a mortgage on that rental property? If NOT, you cannot subtract what you “owe” on it, because you don’t owe ANYTHING on the rental property. The mortgage you apparently have is for your PRIMARY residence. I don’t believe your “paper trail” will matter at all. Fact is…you have NO outstanding mortgage for that rental property. You HAVE an outstanding mortgage for your primary residence.</p>
<p>Certainly I would like to see it work to my adventage , but if the wording "related to the investment " is used on fafsa.gov to describe the situation I do not see how it is not related .
Is your son related to you ?
So is your great grandmother’s sister’s whomever .
I have not found anything in the help section of FAFSA.gov pertaining to second mortgage .</p>
<p>So what if your great grandmothers sister is related to you? You wouldn’t be able to put HER on your FAFSA either unless she lived with you AND you provided the bulk of her support.</p>
<p>Kris…you have stated that this has all been refinanced and is a primary mortgage against your primary residence. Is that right? If so, how would a mortgage against your OTHER property be used to offset equity in your rental property?</p>
<p>I’m hoping one of the finaid experts here will pipe in. It sounds to me like you WANT this to be a different way than it is.</p>
<p>I just can’t imagine that you can use mortgage balances secured against one property to offset equity in another property. It doesn’t make sense.</p>
<p>As an aside…if your kid applies to any Profile schools, what will you do?</p>
<p>They used expression “related” not "mortgage against your primary or secondary residence " .
It sets certain guidelines and I just try to stay in between them .
Would that be a lie if I present it that way , lie that I can be penalized for ?
In a Profile application there is a dialog box where you can describe it and they do whatever they are pleased to do with it .
I just don’t want to be accused of lying and the other hand screw myself .</p>
<p>“Debt related to an investment” is a lesser standard than “debt secured by an investment”.</p>
<p>The IRS allows interest on a debt for an investment property that is not secured by that property to be deducted on your schedule E, as long as you can show a trail of what the money was actually used for.</p>
<p>I think you can make the same case for assets reported on FAFSA. Otherwise the instructions would say “debt secured by the investment.” Why would the source of funds matter?</p>
<p>My $0.02 .</p>
<p>I’m just asking about the Profile, because you will not be able to use the same mortgage to reduce equity in BOTH your primary and rental properties. If you choose to use this loan to reduce the equity on the FAFSA, seems to me you would need to do the same on the Profile. You might want to see how the schools use equity in your primary residences in their calculations for profile schools that use primary home equity.</p>
<p>I think in either case you’re better off using the mortgage as an debt against the rental property, if you can legally do so. You’re definitely better off using it on the FAFSA obviously. For the Profile, I would think it would either be a wash or again be in your favor, depending on the school’s treatment of primary home equity. But obviously you can’t count it against both.</p>
<p>My initial thought was no, because the mortgage is associated with the 1st home, not the investment property. After looking through the regs, though, I would say that they are vague enough that you could make a case to use the debt against the investment property (as long as you can back it up). Obviously, for a Profile school that counts the value of the primary residence, that would be double-dipping if you used the HELOC to reduce the value of both the primary home and the investment property - in that case, you could only use it to reduce the value of one or the other - and I would say investment property, since that is what you did for FAFSA. A school might quibble, though, as happens when regs are vague.</p>
<p>To the OP. Is this going to make a difference in your actual aid? The FAFSA EFC is calculated primarily based on income, with assets added in as well. But the FAFSA EFC really only determines your eligibility for federally funded need based aid. Your EFC would need to be less than $5400 to qualify for the Pell Grant.</p>
<p>Schools that use only the FAFSA do not guarantee to meet full need of all accepted students. Your EFC at such a school would be the minimum you could expect to pay.</p>
<p>Profile schools will look at all of your real estate equity, and they use primary home equity to a greater or lesser degree based on the policy of the school.</p>
<p>What I am saying…depending on your income, you might be doing all of these financial gymnastics for no good reason.</p>
<p>good points, thumper</p>
<p>Another very good question and discussion. After reading the question and answers, my take is - I would count this as a loan related to the investment property IF I my child was planning on attending a FAFSA only school and IF it might make some difference in aid AND IF you have a true paper trail that can demonstrate this HELOC was specifically taken to buy the income property. I’m not sure it helps much for CSS schools but they may look at equity in investment property different than in your primary residence, so who knows?</p>
<p>I think for FAFSA it’s a “defensible” stance if audited and not unethical if the HELOC is for that property.</p>
<p>I thought the OP said the HELOC had been refinanced into a mortgage for the primary residence. Maybe I misread that…perhaps the OP can clarify.</p>
<p>I would leave a very good paper trail to substantiate what you are doing and have it all dated and notarized, so that if you re audited or questioned, you ll have this on hand. Otherwise anyone can borrow from a primary home, buy invest property and make the claims you are and I don’t think it’s going to fly in many cases. You might win after challenging it at various levels, but it’s always better to be prepared. SOmething dated substantiating how this is supposed to work BEFORE you are questioned will have a lot more weight than explanation at or after the fact.</p>