If we sell our house and move to a bigger house as primary home,will it lower our EFC

Paying for College
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<p>If we sell our house and move to a bigger house as primary home, will it lower our EFC? And possible more FA?</p>

<p>e.g. If I live in a $400k home, I own$300k of it. If I sell it and move into an $800k home, use $300k as down payment, I’ll have a big mortgage payment each month. Will it lower my EFC? And possible more FA?
Thanks.</p>

2

<p>Mortgage payments have no impact at all on the EFC. They are not reported on FAFSA. It the $300k is invested in the house it will not be a reportable asset. If it is sitting in the bank it will be.</p>

3

<p>If you can afford a 400k home, chances are that your income is high enough that you won’t be eligible for all that much need-based financial aid in the first place. Print out the formula and run your numbers through it to find out: <a href=“http://www.ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf[/url]”>http://www.ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf&lt;/a&gt;&lt;/p&gt;

<p>Why would you want to exchange a big mortgage payment, big taxes, and very likely big maintenance costs just to have a small chance of getting better need-based aid? Doesn’t it just make more sense to come up with a figure (say 20k each year for four years), tell your kid that that is his/her limit, and spend down part of your lotto winnings on your kid’s education?</p>

4

<p>The family contribution is LARGELY based on your INCOME. Your home equity would be considered by SOME colleges in the equation for need based aid, but not all…and these would be schools that use the Profile.</p>

<p>Your primary home equity is NOT used in the FAFSA formula AT ALL. Also if your kid’s college doesn’t meet full need for all students, this might not matter either. </p>

<p>If you can afford the mortgage on an $800,000 house (your income would need to support this in order to get a loan), it’s unlikely you will qualify for need based aid anyway. </p>

<p>You can run the online financial aid calculators using the institutional methodology to get an ESTIMATE…try that using both sets of numbers. OR use the Net Price Calculators on the college websites. BUT remember…these are ESTIMATES only.</p>

<p>I know you are not asking for this opinion…but need based financial aid is supposed to be for students with financial NEED…and living in an $800K house doesn’t sound “needy” to me.</p>

<p>To be honest, I don’t see the advantage for you to do this…I seriously doubt you are going to net much more aid.</p>

5

<p>$400k, even an $800k home is just a condo in some area. I use it as an example anyway.
I just wonder why some people move to a bigger house when their kids go to colleges. It should be downsize because of more expenses and less people in the home. As someone said, the profits of selling house will be treated as income, thus impact EFC a lot. It seems staying the seam house is a good idea. I confused.</p>

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<p>People move for different reasons at different times. It may make sense to you to downsize, but another family may be elated to have the opportunity to move out of a small house in a neighborhood they have been living in for the past umpteen years just because they liked the schools.</p>

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<p>But back to MY comment. If you can afford the mortgage on an $800,000 property, you likely will not qualify for need based aid anyway.</p>

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<p>thumper1,
I just picked up a random number, let’s say $800k for example. If you pick other numbers, such as move from $200k home to $300k home, it’s ok for me too.</p>

<p>“the profits of selling house will be treated as income at that year”, is it correct? even through it’s used as downpay for buying another home in the same year. I want to make sure about this.</p>

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<p>It might lower your EFC. The problem is, a lower EFC does not necessarily equate to more aid. And at schools that pledge to meet need, the equity in the home is considered to be an asset that can be borrowed against to pay for school.</p>

<p>As for why people would purchase a larger/more expensive home when college rolls around, there are many reasons. Any reason is legitimate. What is not right is when someone buys a great big expensive house & then expects schools to give them aid because they don’t have any money. But the truth is, the vast majority of people wouldn’t do that (it only seems like there are more who would, because this is CC!).</p>

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<p>“the profits of selling house will be treated as income at that year”, is it correct? </p>

<p>yes, except under the following circumstances:</p>

<p>If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you “exclude” this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can’t take a deduction for that loss.)
You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven’t claimed the exclusion on another home in the last two years.</p>

<p>[Tax</a> Aspects of Home Ownership: Selling a Home - TurboTax® Tax Tips & Videos](<a href=“Tax Aspects of Home Ownership: Selling a Home - TurboTax Tax Tips & Videos”>Tax Aspects of Home Ownership: Selling a Home - TurboTax Tax Tips & Videos)</p>

11

<p>Profits of selling a home, if under the Federal capital gains threshold of $500K for a married couple, are not treated as income in a given tax year. </p>

<p>(cross-posted with menloparkmom)</p>

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</p>

<p>You’d owe taxes on the $300K, say a marginal increase of $30K to your tax bill in the tax year of the winnings. This would also increase your EFC by approximately $150K.</p>

<p>If you sell your $400K home and put the gains (assuming your current home has no mortgage) into the new house, adding in the net $270K of your winnings, you’d be putting $670K down on an $800K home.</p>

<p>So the net gain of your windfall is a higher tax bill, a higher EFC, and a bigger house with (presumably) a bigger mortgage than you have now.</p>

12

<p>So you sell your house for a $300K gain; no taxes due.</p>

<p>You put that $300K into an $800K house; your new mortgage is $500K.</p>

<p>There’s no net difference between the 2 scenarios with respect to financial aid. You have an asset (your house) that has a net equity of $300K. It’s either a protected asset (for FAFSA-only schools) or a non-protected asset (for Profile schools). Either way, it doesn’t make a difference. Your EFC hasn’t changed. You end up with a larger mortgage payment, but your mortgage payment isn’t reported on FAFSA or Profile so there’s no benefit to you with respect to the financial aid formulas for taking on this additional debt.</p>