<p>(I am a Junior trying to get a handle on this...) :confused:</p>
<p>which home equity definition below is the one colleges consider...?</p>
<p>1) Home Equity= What the home is projected to be worth (by tax assesor?)
- Original Home mortgage
- any additional home equity loans</p>
<p>OR </p>
<p>2) Home Equity= What the home is projected to be worth (by tax assesor?)
- Original Home mortgage</p>
<p>It would be #2 -- the market value of the home less all debt which is secured by the home. </p>
<p>If someone sells a home and they have a mortgage and home equity loan, the loans need to be paid off before the sale is complete. Typically, the buyer deposits funds in escrow; all loans are paid off from the escrow account; and then the money that is left over goes to the seller. </p>
<p>So when colleges are looking at "equity" they are looking at what the house is worth to the owner in terms of what they could get if they sold it-- or what piece of ownership is left that they could still borrow against.</p>
<p>I believe they would also deduct any amounts of the home equity line that were actually used - not the line of credit itself. So if you actually took out, say, $10,000 from the home equity loan or line of credit, that $10,000 would be subtracted from the home equity amount, even if the line of credit were much more.</p>
<p>just to confuse things more, what the house is worth as determined by the taxes? I always thought it was current market value. The value on tax bills is not current value.</p>
<p>In another thread on this board, I read that colleges look at the original price of the home, and then adjust it by their own schedule of appreciation for various time periods and parts of the country.</p>
<p>So if you bought a house in Scarsdale in 1997 for $300,000, they might assess your house at $600,000.00. If you bought a house in Buffalo in 1997 for $100,000, they might assess your house at $100,000.</p>
<p>As a side note, this strikes me as being pretty disgusting. People buy their houses to live in, not as a college savings fund. To me, it confirms the view that colleges are intent on extracting as much wealth as possible from each customer's family.</p>
<p>Just my humble opinion, of course.</p>
<p>actually, none of the above. A typical county assessor uses statistical averages to assess a house, which may not even be close to what its worth on your block. When I lived in Illinois, they only reassessed every four years.</p>
<p>So, the answer is current market value (and without a real appraiser MV is speculative), less any mortgages less any home equity lines.</p>
<p>I'm afraid I have to disagree with Iskinner. If you were lucky enough to have bought a house in Scarsdale for $300,000, and it is now worth $600,000 (actually, prolly even more!), then, once the children have gone off to college, the parents could ostensibly sell, move to a smaller home, and use the excess profits for college costs. On the other hand, pity the poor people in Buffalo, whose homes have hardly appreciated at all in value. Their equity has been stagnating -- there is no opportunity to sell, move down, and collect profits to be used for college financing.
If anything, I think the home-owners in areas that have seen high rates of appreciation (SoCal, Boston, NYC, etc.) are being treated more generously than those who reside in severely depressed areas.
Oh, and if there are any College FinAid people reading this -- please correct me if I am wrong (though looking at my own dismal, need-based financial aid package, I don't think I am!)</p>
<p>It would definately be #1. Equity is the value less original mortgage balance and less all other loans secured by the property, such as second mortgages, home equity loans, etc. I think Calmom meant to say #1, not #2.</p>
<p>The assesed value set by the tax authority can be very accurate in some locations. </p>
<p>In Texas, for example, there is no income tax but high property taxes, so everyone is keen on the assessments being accurate. Not too high, not too low, just right, like baby bear's porridge. The tax assessor collects accurate comparables, and if it is too high the owner can easily appeal it down to just right.</p>
<p>
[quote]
I'm afraid I have to disagree with Iskinner. If you were lucky enough to have bought a house in Scarsdale for $300,000, and it is now worth $600,000 (actually, prolly even more!), then, once the children have gone off to college, the parents could ostensibly sell, move to a smaller home, and use the excess profits for college costs.
[/quote]
</p>
<p>To realize a substantial profit, many or most people in this situation would probably have to leave the community and most likely leave the NYC area. If they work in Manhattan, that's just impractical.</p>
<p>For my part, I'm happy in the house I am living in. It's not a mansion -- just a basic 3 bedroom ranch that was built in 1952. I live in Bergen County, New Jersey. I'm happy here. I think it's unreasonable to tell parents to uproot themselves to pay for their children's college.</p>
<p>
[quote]
On the other hand, pity the poor people in Buffalo, whose homes have hardly appreciated at all in value. Their equity has been stagnating -- there is no opportunity to sell, move down, and collect profits to be used for college financing.
[/quote]
</p>
<p>So what? The poor people in Buffalo will ostensibly get financial aid packages that are all the bigger for it. It seems like in many cases you are better off if your home doesn't appreciate too much.</p>
<p>This ignores that the Scarsdale family got a windfall. Hard to access it, but still a windfall like winning the lottery. The smart play would be to send the kids to FAFSA-only schools, then when the last one graduates, cash out and retire in a less expensive area. I have many relatives in California who are in this situation, waiting to move back to Texas when the kids are grown and gone.</p>
<p>
[quote]
This ignores that the Scarsdale family got a windfall. Hard to access it, but still a windfall like winning the lottery.
[/quote]
</p>
<p>I haven't ignored that fact, it's just that "hard to access it" makes all the difference.</p>
<p>If I won $300,000 dollars in the lottery, I would say to colleges "fine, take it all." I still think it's a ripoff, but I wouldn't really care. But for me and a lot of other people, moving 1000 miles after my children hypothetically graduate college is simply out of the question.</p>
<p>You can borrow against it.</p>
<p>
[quote]
You can borrow against it.
[/quote]
</p>
<p>Sure, but that loan must be re-paid sooner or later, with interest.</p>
<p>Compare the hypothetical Bufallo resident with the hypothetical Scarsdale resident. Perhaps both send their children to college and the only difference is that the Scarsdale resident ends up with an extra $200k in loans, secured by his house. If he loses his job and can't pay the $200k back, his home is subject to foreclosure and seizure.</p>
<p>Who is the luckier person? Who deserves pity? The answer is not obvious to me.</p>
<p>The scarsdale resident is luckier than buffalo guy for two reasons:</p>
<ol>
<li>He was able to borrow against his home. Bufflao guy does not even have that option.</li>
<li>Even in the event he loses his home, the forclosed price would still have enough equity to pay-off the mortgages.</li>
</ol>
<p>
[quote]
moving 1000 miles after my children hypothetically graduate college is simply out of the question.
[/quote]
How about moving from Scarsdale to Albany? Or Pasadena to Fresno? I'm not familiar enough with NY real estate to know if they are comaparable, but a move from Pasadena to Fresno allows one to trade in an $800K home for the same thing costing $250K. </p>
<p>Is it fair to ignore that in deciding how to award financial aid? The Pasadena couple merely has to run out the clock to get the windfall.</p>
<p>"The poor people in Buffalo will ostensibly get financial aid packages that are all the bigger for it. It seems like in many cases you are better off if your home doesn't appreciate too much." (lskinner)</p>
<p>Errr... not in my case. One of the reasons why I bothered to post on this thread is that I have not been awarded any need-based aid, whereas I've learned that others, with similar parental incomes but living in areas of high property values (SoCal., Ct., etc), are quite a bit luckier.
At some stage, the parental home will be sold -- either to move to a smaller, retirement home, or, more sadly, in the event of death. In either case, the parents/children with the home in, say, Newport Beach or Greenwich, are going to be better off than the parents/children in Buffalo or North Dakota. And, as a result, the SoCal/Ct./Westchester students will be in better shape to pay off loans, etc.
Anyhow, I guess my ultimate wish is that FAFSA would be more sensitive to the issue of home equity, or lack thereof!</p>
<p>
[quote]
1. He was able to borrow against his home. Bufflao guy does not even have that option.
[/quote]
</p>
<p>Yes, but the problem is that colleges are aware of the ability to borrow and are able to increase tuition accordingly. Sometimes having more access to money makes you worse off, particularly if other people are aware of it.</p>
<p>You keep on changing your parameters. In a given year (static time) the scarsdale guy is better off than bufflo guy.</p>
<p>Remember the saying. Buying Home is the best investment - so when you need it tap in to the investment.</p>
<p>
[quote]
You keep on changing your parameters. In a given year (static time) the scarsdale guy is better off than bufflo guy.
[/quote]
</p>
<p>I'm not sure if this comment is addressed to me, but I don't understand what your point is.</p>