For schools that ask about home equity, are you expected to file proof (such as a mortgage statement and a recent appraisal of your home? We live in a VERY high COL area in a small house we bought many years that has gone up in value quite a lot. Will we be expected to get a line of credit to pay for college? We are struggling due to job loss (but are able to pay the mortgage every month and still have one salary) but we have quite a bit of home equity. I am very worried about all this and any advice would be appreciated. Thanks!
Each school treats home equity differently. Some have a cutoff or multiple of income that is sheltered before being considered “available” as an asset (meaning you take a HELOC). FAFSA schools and some others using Profile or their own forms will not touch a first home. Make sure your child applies to a safety that you know you can afford, s/he is definitely able to be admitted, and would be HAPPY to attend. There are lists of schools which offer merit aid in the pinned threads at the top of this forum.
Thank you. Do they expect you to file an appraisal and a mortgage statement, or do you just guesstimate your home equity? Thanks!
Make sure you write down how you came up with the numbers. Some use a latest assessment or Zillow, then subtract the outstanding balance.
From what I’ve seen some people post, the schools do their own evaluation (maybe using Zillow or something else) and will adjust if they think you’re claiming too low of a value.
Since it sounds like you’re concerned that they will expect you to take out a HELOC, and you don’t want to do that, then you need to warn your child about this possible situation, so that he/she can also apply to other schools that you know WILL be affordable.
Many people get “bit in the hiney” over home equity or values of businesses or farms or ranches. These are things that people don’t want to borrow against, but the schools consider them to be assets that have value.
If Zillow is a lot more than your purchase price, I would suggest using the government estimate of home value.
http://www.fhfa.gov/DataTools/Tools/Pages/HPI-Calculator.aspx
Our house shows 0% increase according to that, so that is what we used. Zillow can be bullcrap for certain areas.
The OP lives in a high COL area, and owns a house that has appreciated quite a bit in value…and that is the concern.
To the OP, you need to find out how each college your kid is applying to treats home equity. This varies wildly by school. Some don’t deal count primary home equity at all. Some cap the assessment of home equity at a %age of income. Some expect a lot more than that. So…ask.
Schools that use only the FAFSA do not use primary home equity in their financial equation at all.
@rhandco purchase price is irrelevant…current value minus outstanding mortgage is what matters.
Look at your own situation…you’re going to take out a loan against your home based. Your ability to do so is based on your home’s current value minus mortgage ( and in your case, you have none).
You can’t have it both ways…high value to borrow against, yet low value claimed on CSS.
It’s not irrelevant with that calculator. They use the average increase in value based on the area.
The only thing that isn’t clear to me what “years ago” and “quite a lot” is. My dad’s house was bought 50 years ago for about 6K. It’s worth about 200K now. If that is what we are talking about, then yes, the 200K is what you need to list. But if you mean 10 years ago, it would be odd that the increase would be “quite a lot”.
My house was bought around 10 years ago, and the current price is the same according to that calculator, and the bank thought the same thing when we refinanced our mortgage into a HELOC a few years ago.
I would not want someone to “err on the side of caution” and overreport their house’s value without using some reputable source. I do not think any college can argue with the calculator I linked to, and I don’t think any college should consider Zillow as gospel.
We were more worried about underreporting than overreporting, and feel we put ourselves at a disadvantage for FA and are stuck.
And to answer the original question, no, they won’t ask for proof, and apparently the proof you have is based on the old cost of the house and you don’t need to pay for an appraisal.
Sorry it’s been so long since I replied! We are in the Bay Area, where “quite a lot” literally means tripled in value over 15 years (that’s based on comps on our block, not just on Zillow). College bound kid is aware money is an issue. Thanks for all the replies!
@rhandco I find that government estimate calculator results to be a bit suspicious. There are so many factors it does not address, such as area of MSA, number of forclosures in our neighborhood, the fact the even realtors have a hard time pricing comps for our neighborhood. I just go with our tax assessment because it is much closer to reality in our area.
I think the point from all of these comments is that the reporting of home equity, when required, needs to be based on a realistic assessment of the value of the home, minus any mortgages on it.
That realistic assessment can come from a variety of sources, but it needs to be a good faith reporting of the value that can be backed up by a verifiable source in the event of a challenge. For some, that could be the government estimate calculator, for others Zillow, for others a recent appraisal or nearby sales of comparable homes, for others the tax assessment, etc.
Edit: If your home is in worse condition than other homes in your area (i.e., obviously needs new roof or needs some expensive repairs, etc.) then I would think it’s fair to adjust the value for the condition, but I would take pictures of the condition(s) that make your home less valuable than others in the area. Of course, the converse is also true. If your home has been far more upgraded than others in the area, it’s only fair to take that into consideration when determining the value of your home equity.
Also it’s what you get for selling today and not what you get for having 60 days to sell it. Be conservative because there is also cost of selling. I wouldn’t use zillow. It’s not accurate.