How will buying a new house affect EFC, etc?

Paying for College
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<p>Hey guys!</p>

<p>I didn't plan on thinking about FA until I actually got around to applying to colleges next year (I'm a junior). However, my parents are thinking about moving up to a bigger house (300k more than the one we live in currently). It's a REALLY good deal and we're likely to be able to sell for profit in a few years. They're worried that this will make us look richer than we really are for FA offices. </p>

<p>Is that likely to be the case? How do they determine EFC? Our income won't really change, and our net equity won't either, since we'll have a significant mortgage on the new house.</p>

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<p>FAFSA EFC will not be impacted at all. The primary home is not reported on FAFSA.</p>

<p>Schools that use CSSprofile do require home equity to be reported. How they use that will vary by school.</p>

<p>If your parents have the income to take on an additional $300k in mortgage you may not be eligible for much aid anyway. Need based financial aid is based on income and assets and does not take into account that you have a high mortgage to pay. Of course the higher mortgage may impact your parents ability to pay for college.</p>

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<p>*
If your parents have the income to take on an additional $300k in mortgage you may not be eligible for much aid anyway. *</p>

<p>That is very true… HOWEVER…You need to tell your parents NOW, that since their income is so high (obviously), you won’t likely qualify for aid if you buy this house or if you remain where you live. THAT is the bigger issue. </p>

<p>Therefore, your parents need to stop and think about how this purchase is going to affect their ability to pay for your college education. IF a good % of their income is going to this new mortgage, how are they going to pay for your college? It’s obvious that from their question that they (probably wrongly) think that they would qualify for aid. </p>

<p>Your parents need to understand that financial aid is not for families who would rather spend their money on expensive homes rather than on their kids. There isn’t financial aid for that, nor should there be.</p>

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<p>Yes, what the above two posters said. It may be a better idea for your parents to stay put for now and then move in four years when you’re finished.</p>

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<p>Ah. Sorry, I should have explained myself better.</p>

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<p>My family is fairly middle class (net income = 120k). I believe this qualifies for aid, since by no means can we afford the 50k + price tag on private schools. I’m not very knowledgeable about this, so please correct me if I’m wrong. </p>

<p>In the past few years, we’ve bought two student home/condos in Canada that we rent out. The rent is equivalent to the mortgage, so we have been building equity that way without significant out of pocket cost. In order to buy this new house, we’d sell these condos and put that chunk of money in the new house off the bat. This will yield a relatively similar mortgage to the one we’re paying now. Financially, it won’t be a significant burden. The house we’re looking at is really devalued. </p>

<p>tldr: We’ll be paying the same mortgage as we are now.</p>

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<p>Can you elaborate on this? If our assets increase in value over the next year, will the FA offered to me decrease? Also, since we’d essentially be transferring equity from Canada to the US in reference to taxes, would our financial status be looked at differently?</p>

<p>Thanks !</p>

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<p>All of this is factored in if you are applying to schools that have need based financial aid. The rent that your parents collect on their condos are considered income whether or not they are just breaking even on the mortgage. In addition the equity on the condos will be factored in. Remember financial aid for 2011-2012 is based on 2010 income so the rent they are collecting now even before they sell will be considered income on both the fafsa and he css profile.</p>

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<p>Vaeliant, You need to run the financial aid calculators. Frankly, it sounds to me like this would lower your EFC but perhaps not enough to put you in the range of getting any financial aid. </p>

<p>The $ your parents get in rent would be considered income so getting rid of the rentals would decrease income. The equity in the condos is considered an asset and are considered just as available for college fees as $ in the bank. So selling it and putting it into your primary residence might help because FAFSA doesn’t consider your primary residence. <em>However</em> FAFSA really only comes up with a number to qualify for federal aid and you will not qualify for federal help with $120K <em>net</em> income. (That means your family’s gross income is over $150K?)</p>

<p>Many of the top privates use the College Board PROFILE form which does take your home equity into effect so moving it from one asset to another probably won’t make a difference. </p>

<p>Anyway, I think you need to run the calculators so you know your situation. There’s a very good chance that you won’t qualify for need-based financial aid.</p>

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<p>I’m looking at recharacterizing a portion of my IRA this year, transferring it to my Roth. It’s really just taking money out of one pocket and putting it into another pocket.
But the IRS will see this as income.<br>
My question is–if anyone knows the answer: Will the FAFSA see this IRA recharacterization as income? How about colleges? Will they think I “make” more than I really do?</p>

<p>Thanks!</p>

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<p>A Roth conversion does show on your tax return as income and that will be reflected on your FAFSA EFC. This is something a school FA officer is allowed to make an adjustment to FAFSA for. However, as with all special circumstances adjustments, it is at their discretion and they are not obliged to do so. A few people have posted about this and most say that their schools will make an adjustment. I seem to recall that one poster had a less cooperative FA officer. It is important that you ask your school how they will handle it. In the end that is the only thing that matters.</p>

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<p>Vaeliant, with a net income of 120K your family is not middle income. That is a quite high income. You may be eligible for some need-based aid at places like Harvard or Yale, but it highly unlikely at at most schools. I agree with the posters above, you need to run the numbers through an online financial aid calculator. It is very important you and your parents know what to expect before they make big moves with their money. It may not change their plans (the plans may be beneficial in fact, or just neutral) but making such decisions with a clearer picture of what’s coming down the road is always wise.</p>

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<p>My family is fairly middle class <a href=“net%20income%20=%20120k”>B</a>.* I believe this qualifies for aid, since by no means can we afford the 50k + price tag on private schools. I’m not very knowledgeable about this, so please correct me if I’m wrong.</p>

<p>In the past few years, we’ve bought two student home/condos in Canada that we rent out. The rent is equivalent to the mortgage, so we have been building equity that way without significant out of pocket cost.** In order to buy this new house, we’d sell these condos and put that chunk of money in the new house off the bat**.*</p>

<p>**
What do you mean by “net income”? Financial aid is based on AGI, not “net income.” ** If your parents “net income” is $120k, then their AGI is much higher.</p>

<p>So, regardless of the fact that you feel that your family cannot afford $50k per year, you will not qualify for much aid at most schools. Worse, if you sell those 2 rentals in 2010, then that will make your 2010 income EXTREMELY HIGH…WAY TOO HIGH for any aid ANYWHERE. You will be filing a FAFSA (and likely CSS) in 2011, based on 2010 income (earnings plus sale of 2 homes). That means you’d qualify for NOTHING at least for the first year of college. </p>

<p>That said, your EFC would drop for your soph thru senior years, but maybe not enough for much aid because the regular family income is high (and the income will likely be higher for 2011)</p>

<p>I don’t think selling the rentals will reduce income (from rent) because it sounds like the rent paid for the mortgages. Since you only gave “net income,” I imagine that “on paper” the rentals were a “wash” or even a “loss” income-wise.</p>

<p>Ask your parents how much their Adjusted Gross Income (AGI) is. And, ask them what it likely will be for 2010 when they file taxes in 2011 (which will include the sale of those 2 rentals).</p>

<p>BTW…I hope your parents realize that when they sell those 2 rental properties and put the equity into the new family home, there is NOT a postponement of paying capital gains taxes. (That only exists when a person sells their primary residence and uses that equity for a more expensive primary residence.). So, if your parents net - say $200-300k from the sale of 2 rentals - they will owe HUGE taxes on that. So, all the equity will not be available for that bigger home.</p>

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<p>OP, the fact that your parents have additional properties makes everything abit more complex. No one here will be able to accurate “predict” how this will play out for you. The best thing would be for your parents to run several of the institutional calculators to get an idea of what would happen under the 2 scenarios - keep the rentals, sell the rentals and put the money into the family home for schools that utilize the CSS profiles. They could also run the FAFSA calculators where the family home is not considered. Do remember that the FAFSA and/or CSS you fill out next year will be based on this year 2010. That said, you will most likely not qualify for much Federal aid and your income alone is above “average income.” The finaid pages of the elite schools talk about income levels and “average” assets…no one here can tell you if your parents assets are “average” or not, but your parents can and should research different scenarios and it’s smart to do so. That way they can help you put together a list of colleges/unis to apply where you are in the best position grade/GPA wise as well as financially wise.</p>

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<p>Another thought…</p>

<p>Since most of the top $50k schools use CSS Profile, I believe that home equity is or may be considered. If the family goes thru with this new home purchase , they will have a lot of equity that will be considered. Their equity will include the equity from the sale of their main home, PLUS the $300k equity of sale of the rentals. Since the OP says that that the new home is $300k more than their present home, yet their mortgage will be the same, that implies that the family will be adding $300k in equity to their present equity. I think CSS profile will count that equity as a big asset.</p>

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<p>I don’t really have much to add different than previous posters, but I will give my $.02 anyway, because it is very important to understand, and good for you, to get this info * before you apply to colleges*, while you have time to find good fits financially as well as academically.</p>

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<p>I am confused- which is accurate?</p>

<p>Say your parents did all this when you were in jr high. Sold the condos, sold the old house, bought the new one and used the money from the condos & the current house combined to pay down any difference on the mortgage for the new house, then I don’t think it would have made a difference in FAFSA.</p>

<p>but if you are applying in 2011- and they do this in 2010, that is the year financial aid offices are looking at to see how much aid you might need.
They will see income from real estate which will make your EFC higher.</p>

<p>IF you only apply to FAFSA schools, which “generally” are NOT the schools that meet 100% of need, you will not need to include the price of your residence.
But schools that do offer 100% need based aid, often also utilize the PROFILE to identify additional need/assets, including cars, when you bought your house etc.</p>

<p>In my experience EFC is roughly about 1/4 to 1/3 of gross income.
When our before tax income was about $48,000, our EFC was about $12,000.
Some depends on how many dependents etc, you can use the finaid calculator and use different scenarios to get a better idea of what to expect
[FinAid</a> | Calculators](<a href=“http://www.finaid.org/calculators/]FinAid”>http://www.finaid.org/calculators/)</p>

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<p>Thanks for all the advice !
I’ll run our numbers through some of the calculators you guys recommended.</p>