<p>My D is a rising senior in high school, and will be applying to FAFSA and CSS colleges in the Fall. Currently it looks like our EFC is around 25k.<br>
My mother has a small, older, paid for, house near ours. She is living in a nursing home now, and can't really afford the upkeep on the house. Financial rules do not allow her to rent the house and create income. As long as she owns it, it is a protected asset, so selling it is not an option.<br>
We are wondering if it might be mutually beneficial if we were to sell our house and move into hers. We would not officially pay rent, but would be taking care of maintenance, utilities and taxes and insurance.<br>
Maintenance and utilities would be more at her house than at ours, but we wouldn't have the mtg payment. But, we also wouldn't be building equity.
Selling our house would mean some cash inflow for us, which I guess would be a capital gain since we would not be buying another house. If I understand capital gains, that would be sale price minus mortgage, minus costs of improvements to the home, so the gain would probably be around 50k. How would that one time increase in cash affect FA?
Maybe we could buy another place, a small, low maintenance place to put the money back in, but would that then be considered a 2nd home even if it's the only one we own?
I tried running a couple net price calculators without home ownership, and expected it to then ask about rent costs, but it didn't. How Does rent paid usually affect FA?
It's possible, even likely, that none of this would happen until after the first of the year.
Just trying to look at all the possible ramifications.</p>
<p>The last time I checked, if you were married, and the gain on the house $500,000 or less, and you had lived there five years, no capital gains taxes were owed. But that should be easy enough to check up at the IRS website.</p>
<p>Rent doesn’t factor into the financial aid formulae.</p>
<p>Your home equity is not included in the FAFSA calculations. At some CSS Profile colleges it is included, or a percentage of the equity is. Run the net price calculators at the websites of the places that are on your short list, and see what happens with home equity and/or an extra $50k in your bank account. </p>
<p>@happymomof1, Lol, lol, well we’d be talking about muuuuuuch less than 500k! We’ve lived here well over 5 years, and we are married, so maybe that part just isn’t an issue!
How do they not factor in rent? Is there just an assumption of a certain amount for housing costs? That surprised me.
I will run some more net price calculator scenarios.</p>
<p>And keep in mind that most schools cannot meet need (and some that do meet it with loans). A drop in EFC may not result in a comparable increase in gift aid. If you run the numbers and the EFC doesn’t change much, consider whether or not giving up your home to fund four years of undergrad is really the way you want to go.</p>
<p>Does your mother have enough cash to pay for her nursing home care for the rest of her life? In some states, medicare/medicaid can (and does) put a lien on the home and it must be sold after death to pay the state back for the nursing home care. A man from my church just became homeless when his partner died and the home (in the partner’s name only) had a lien on it to repay the state of PA.</p>
<p>FAFSA doesn’t consider rent or mortgage. They factor in a percentage of income for living expenses.</p>
<p>We really wouldn’t be doing this for the primary purpose of funding college. We just realized that it could end up being helpful, since we wouldn’t be making mortgage payments. We are going to have to pay to maintain Mom’s house whether we move there or not. If we don’t move in, the costs will be shared with other family but that can get tricky. We just want to be sure that it wouldn’t end up being detrimental to us.
Mom doesn’t have money. The family has set aside some funds to help cover unexpected costs for her, but we don’t want to whittle that away keeping an empty house running. There is no lien issue in our state.</p>
<p>You need to be very certain that your mom’s home won’t be an specter asset upon her death…to cover her expenses.</p>
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Maybe this isn’t phrased well, but this doesn’t sound right to me. If I had $165K in cash, bought a house, made no improvements, then 5 years later sold the house for $165K I wouldn’t have a $165K capital gain. There should be some basis cost that you have in the house, which you are subtracting from the sale price. Also, don’t people have 2 years to buy another house before they would have to pay capital gains tax? </p>
<p>That whole requirement to buy another home within 2 years to avoid cap gains ended in 1997. A lot of people think it’s still the case though. Now there are just flat amounts.</p>
<p><a href=“Capital Gains Tax On Real Estate And Selling Your Home | Bankrate”>http://www.bankrate.com/finance/money-guides/computing-capital-gains-on-home-sale-1.aspx</a></p>
<p>I am wondering about all of the proceeds from selling your current home. Wouldn’t that increase your cash and investments causing a decrease in EFC?</p>
<p>@naviance, It looks like that may be the case. I was surprised. I ran a couple net price calculators with the money as equity comparing it to having the same money added to cash. As cash, it does negatively affect FA. I had thought, since the amount didn’t change…just moved from equity to cash…it wouldn’t have that impact.</p>
<p>Home equity often is evaluated differently (and doesn’t matter at all for the FAFSA), so yes where the money is can make a difference in the aid package.</p>
<p>What are you going to do with the money you get from selling your house? Unless you have a lot of loans to pay off and aren’t going to end up with any money, you are going to have some increased assets, aren’t you? You do get an asset protection allowance but anything over that is hit up at 5% or so right onto the FAFSA EFC. FAFSA gives a break to home owners in that primary home values are not reported on FAFSA. Not so the case for proceeds from selling such a home if they are sitting anywhere the day you fill out the FAFSA.</p>
<p>The big issue is PROFILE. Schools using PROFILE info can use any of that info any way they please incomeing up with what they feel you can contribute. I don’t know any schools that guarantee to meet need using the FAFSA EFC. The vast majority of families simply get gapped. You don’t meet PELL requirements, so the the increase in your FAFSA EFC may, or may not make any difference at many schools. They may just gap more. When it comes to the schools that guarantee to meet need, those schools define it themselves and it’s up to them how they do this. The NPCs do not cover situations such as getting to live in a house for free or greatly diminished cost, but when income and expenditure statements are sometimes required, when info of that sort gets to the attention of fin aid offices, that might be taken into account.</p>
<p>Also, if you have not already done so, make sure you speak to an attorney and get advised about how your state and how the fed government, the nursing home, etc, all fit in with your mother’s situations. Yes, some families have gotten some rude shocks upon the death of a parent as to how assets are distributed and who gets dibs on them in situations like yours.</p>
<p>I am starting to see that just selling our house and moving into Mom’s might not end up working in our favor, so now I will focus the ‘research’ on either selling our house and putting the money into a less expensive, lower maintenance place (maybe buy our retirement condo?), or keeping our house but renting it out (since Mom can’t rent hers) as a possibility. It just seems there should be some way that having a less expensive place to live can be beneficial! At the same time, I have to keep in mind that Mom’s house is going to continue to be an expense no matter what we do. Up until the last couple years, our finances have been so straightforward, and now, with college looming, things have gotten complicated!
Mom’s attorney (here in Florida) assures us that the house is protected and that upon her death would be passed along per her will.</p>
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<p>The equity in a house not your primary residence will be an asset for both fafsa and profile. Plus the rental income will bump your AGI. For profile schools some of the tax allowances against rental income may be disallowed so the income hit may be higher than for fafsa.</p>
<p>The problem is that it all depends upon what schools are left on the table as options for your DD. It might not make ANY difference at all. I’ve seen families go through all kind of financial gymnastics and end up with a jungle gym or maze of finances, and not get squat for college. If your DD ended up at State U for instance, with your EFC, she might just get subsidization of her loans and work study. Say some merit money here or there. With a $25K EFC, won’t make much difference. But then when you are looking at a school, like, say Colgate, who knows how they are going to look at your assets.</p>
<p>The thing is, the value of your house is often even protected at PROFILE schools. First of all the net market value can be a value that you come up with for a sale within a short period of time net of expenses. Also many schools will max out home values at a multiple of income. No such protection for actual cash or other assets. If you rent out your house and get income that way, it will be heavily hit by aid formulas which are primarily income driven. </p>
<p>Having a less expensive place to live is beneficial in that you have more money to pay for college. It’s not a dollar for addition of cost for colleges, you know. If you end up with $X more, it’s not as though the college will aske for every bit of the $X additional except in some state programs with a cliff formula where it’s all or nothing. If you are close to not qualifying for some benefit, it’s usually a small amount you lose when you cross the line. Such as with PELL, though the max is $5700, that is for a zero EFC. If you are right at the edge of qualifying it’s hundreds, not thousands you lose from the program, hardly worth risking hundred to qualify for it.</p>
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I see what you are saying. I was just looking at the increased EFC and adding to my sticker shock. It does look like, it might still be beneficial overall, maybe by about 5k a year…give or take, probably take 
Lots to consider.<br>
I appreciate the input. I have a hard time looking at all the angles.</p>
<p>You are highly unlikely to get that EFC met. Where the issue lies is with PROFILE schools. And really, it’s nearly impossible to tell how they regard any of this. Some might let it go, some may Every Friggin’ Cent look like a cake walk with the examination they make of the financial picture. They can go after the silver in your teeth. Value of your cars, income and outgo statements. I’ve seen schools (UCH) go after initial student accounts and track them FOR ALL FOUR YEARS there. Many do not use the FAFSA %s going after more than the 5% of assets, or 20% of the students (JHU), some will even use 401K assets (BC admits it but I think they all do at a certain number)</p>
<p>The fact of the matter is that at most FAFSA only school, you are not likely to get a whole lot more anyways unless your student is way up there in stats and gets merit which exceeds need. It’s the schools that guarantee or might meet close to full need that are your concern and they don’t like to divulge their formulas As you have seen, NPCs only cover common situations.</p>