<p>Just a little confused about what it means</p>
<p>What it means is that whatever your home equity might be, it is capped or is counted at an amount equal to a multiple (usually 2.4 X) income. Income of $100k means that your home equity amount in such an example would be $240K. If you have a million dollar house all paid off, then that is $760K not counted. </p>
<p>Personally, I think that there should be a home equity allowance instead of the way it works, but I’m not the rule maker here.</p>
<p>Some schools will not use home equity at all, whereas some will use another mulitiple and still others will use every cent.</p>
<p>Would that amount be counted for you or against you in most cases?</p>
<p>It will be counted as an asset that your family could borrow against and usually reduce your aid package.</p>
<p>*What it means is that whatever your home equity might be, it is capped or is counted at an amount equal to a multiple (usually 2.4 X) income. Income of $100k means that your home equity amount in such an example would be $240K. If you have a million dollar house all paid off, then that is $760K not counted.
*</p>
<p>I think Cpt means that that would mean $240k not counted and $760k that is counted.</p>
<p>* </p>
<p>Personally, I think that there should be a home equity allowance instead of the way it works, but I’m not the rule maker here.</p>
<p>Some schools will not use home equity at all, whereas some will use another mulitiple and still others will use every cent.
*</p>
<p>I agree that using a multiple based on income seems ridiculous. Why should a higher income family get greater equity protection? If anything, it should be the other way around…those with incomes that are less than - say $100k - should have a larger multiplier protection…like maybe 4X or so. While someone with an income of - say $250k+ - should only have an equity protection of 1X of so</p>
<p>It does work that way:
If a family earns $100,000/yr and they have $200,000 of equity in their home, that asset will only be valued at $2400 (2.4% of income.)
If a family earns $250,000/yr and they have $200,000 of equity in their home, that asset will be valued at $6000 (2.4% of income.)</p>
<p>The “cap” is on the value of the asset, not a protected amount. Anyway, the “caps” are usually limited to certain lower incomes, so I’m not sure a family earning $250K would get their equity capped. It depends on the policies of the individual schools.</p>
<p>Maybe this clears the confusion that I (and maybe others) had.</p>
<p>And from “Paying for College Without Going Broke” (Princeton Review, 2007):</p>
<p>“Let’s take a family with income of $60K and a home valued at $200K, with a $100K mortgage. At schools that choose to cap the home value at 2.4 times income, the maximum value of this family’s home would be 2.4 times $60K or $144K. The colleges will subtract the $100K debt from the $144K asset and decree that the family has equity of $44K…”</p>
<p>“However, let’s take a family with a combined income of $60K, a home valued at $300K, and a mortgage of $200K. If the schools choose to cap home value at 2.4 times income, the maximum value of the house for assessment purposes is $144K. The colleges then subtract the mortgage of $200K. In this case, there is, in fact, no equity at all in the home as far as those colleges are concerned.”</p>
<p>A reason for this is because in some areas, like mine, housing costs are outrageous, and familes who bought a house earlier in their lives or inherited their family home will have large asset in this home, that cannot be tapped entirely without endangering it. So the figure, 2.4 X is considered an amount borrowable and repayable. So a family that earns $100K a year and has a home with equiity in it, up to $240K of it is considered an asset, or the actual value of the house, if lower. That amount is then subject to the percentage that assets are hit. </p>
<p>'rentof 2, it is not a percentage that is applied but a multiple which is applied to the income, and is the maximum that a house is valued as an asset. But yes, the cap is on the value of that asset and is not a protected amount. Ironically the amount “protected” is any home equity amount over that maximum.</p>
<p>So if income is $100K and you own a house valued at $500K, completely paid off, a situation not unusual around my area–such a home could be a modest split level on a quarter acre, 3 bedrooms, FAFSA would not include that home equity in the EFC. Princeton U would not include that home equity amount either. Boston College would say you have assets in that full amount of $500K which pretty much give you an expected college payment to them of about $25K the way assets are assessed which pretty much throws your student out of the financial aid zone here if you much else in assets over the protected amount. But most other PROFILE schools will limit that home equity to $240K in assets, which translates to about $12K in college contribution, which means, depending on other assets, that family would likely get some financial aid toward the cost of a private school, if such school guarantees to meet full need. The family is indirectly expected to borrow $12K each year against that home equity, in addition to coming up with whatever contribution from income that is generated, maybe $20K and about 5% of other saving and assets to be liquidated each year.</p>
<p>As Mom2collegekids demonstrates, when a mortgage is present, it further reduces the value of the house to a point where it may not be considered at all. In my example above, if the house that is worth a half million has a quarter million dollar mortgage on it, that mortgage exceeds the capped value of the house, so it is not included in assets targeted for payment at all for those schools with that typical 2.4 cap. For those schools like BC which does not cap, there is still a quarter million dollar of house that is hit up as assets in the financial aid formula.</p>
<p>Wow this is a great explanation. Thanks!</p>
<p>Parental assets, above the protection allowance are hit up at about 5.5% most of the time. FAFSA does not include primary home equity values at all in assets, and a few other schools that use PROFILE in addition to FAFSA also leave the primary home equity values out of the assets. But most PROFILE schools do include that value. 2.4 times the annual income appears to be the cap put on that home equity value, though some schools use another cap or no cap at all. Very simply, that cap is multiplied by the income and that number is what is considered an asset and subject to being treated as such, if you have any home equity at all unless the home equity is lower than that product, in which case, the actual value is used.</p>
<p>Where there is unfairness is that if you get two families with identical asset/income situations with the exception of one having a half million in home equity, and the other with half that, the one with more gets to shelter the amount that is over the cap. That is probably to take into account the differences in housing costs in the US. Where I used to live, one can find a nice 3 bedroom house on a quarter acre in a good neighborhood for $100K. You can’t get a studio for that amount here even in a lousy neigborhood in a rundown condo buidling without getting totally bilked. It just isn’t available. So when you live in the Bay Area or NYC area or round many major cities or vacation type areas, housing costs are typically a greater portion of ones income. The value of the homes and properties tend to increase more quickly too. But a family making a given income is hard put to sell or even borrow against their primary home. FAFSA recognizes this and exempts home equity entirely. The cap gives this some recognition, but requires that it is taken into consideration. Some schools have not cap, and your home is an asset like anything else. The same is beginning to be done with assets in qualified retirement accounts as well. PROFILE does ask for the amount in those accounts, and you had better believe some financial aid offices eyeball what is in there. Kind of unfair since those who have retirement funds tied up with a company in a defined benefit situation are exempt but if you have a titled IRA or 401 K, you gotta report it. Still even more unfair to those who have no qualified account and have built up their retirement in an rental apartment building or just in savings.</p>
<p>So if my family owns a house that is worth 220k and have 170k mortgage on it, capping at 1.2%, how much home equity would be left? Could someone calculate it please?</p>
<p>The house has a net value of $50K ($220K total value minus $170K owed on the house = $50K).</p>
<p>It’s income that provides the cap in the examples above, so without knowing what your income is, it’s impossible to calculate the capped home value.</p>
<p>Assume your income is $50K. The most your home would be valued in the financial aid formula would be $50K * 1.2% = $50,600. Since your net home equity is below the cap, the actual home value ($50K) would be used.</p>
<p>Assume your income is $100K. The most your home would be valued in the financial aid formula would be $100K * 1.2% = $101,200. Since your net home equity is below the cap, the actual home value ($50K) would be used.</p>
<p>In both examples above, capping the home value as a percent of income doesn’t result in a lower calculated asset value. It’s only when home equity is extremely high in relation to income does it make a difference if a school caps home equity.</p>
<p>Sorry for sort of hijacking.</p>
<p>Do schools take into account the value of my parents house which we’re living in for financial aid when I list it on the CSS PROFILE? Cause our income is less than 10k USD a year and I’ll need a lot of aid but the home is valued at app. 700k USD.</p>
<p>I’m an international student btw.</p>
<p>Horrace95, yes, most schools using CSS PROFILE will take into account the value of your parents house in which you are iving. But how it is taken into account depends upon each school and the formula that school uses. As this thread has explained, 2.4X income tends to be the cap for home equity values taken into account. So in your case with a $10K income, the home would be valued as a $24K asset even though its true market value is $700K at those schools wth the 2.4X cap. Then applying the 5.5% formula to that value, it would add about $1400 to your expected contribution. But, some schools don’t look at primary home equity, and some look at every penny of it. So if the school exempts the home equity value, ti would not be considered an asset at all. If the school does not cap the home equity value, then you have a $700k asset sitting in your financial statement which translateds into more than $35K that such a school would expect your parents to get out of that home. So in your case, it might be a good idea to aske the financial aid offices of the school on your list how they treat primary home equity. If they say 100%, you may not get anywhere near the aid that you could at a school where there is a cap.</p>
<p>Thank you so much cptofthehouse, that cleared up a lot of things. I love how helpful people on this forum are (:</p>
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<p>Each EFC Ive tried has asked about home value and how much was left on the mortgage.</p>
<p>It was quite clear what they were after. I dont know if there were any caps in the calculations. Home values are outrageously high where I live so it looks like Im sitting on a ton of money. And so the EFCs have come back with obscene numbers. But its not real money. I only benefit from that presumed equity if I sell the house.</p>
<p>GolfFather, schools using FAFSA only do not ask about primary home equity. 568 schools cap the values at, I believe 1.2X AGI. And, yes, there are some schools that will not include home equity. But most PROFILE schools will use take home equity inoto consideration. It is considered equity you can tap through borrowing.</p>
<p>thank you for your all of the collective knowledge in this post. We are doing all of this for the first time, so it’s a lot to learn. </p>
<p>Do you have to do the net cost calculator for each school to see what real costs “might be”? Is there a version you can save and use for each college to compare? We did do it for one school, but then we had to fill it out for another and so on. So, i was just wondering if there is one version of net cost calculator where you can put in the figures from the tax return that would be saved and then you could apply that form to many colleges? </p>
<p>My D applied to 15+ schools and has received generous merit aid from each school. Coupled with the fact, my H is self employed and income fluctuates yearly, we have no idea if we will receive any FA, so we are trying to base best college choices on merit aid alone. </p>
<p>Would it be safe to say that schools NOT requiring the CSS profile, may be easier to get FA from? </p>
<p>Not to mention, we file the long form for which the software won’t be available from the IRS, until at least Feb 1 to actually do our 2012 return. We are going to try to estimate, send it next week and revise once we file. We will also just pray. Anyone who could answer these questions, I would greatly appreciate your help. Thanks!</p>
<p>First of all, NPC are most accurate at those schools that offer no merit awards and meet 100% of need. They come up with AVERAGES, for the most part, and so the numbers they generate may not pertain to your particular student who may get more or less merit money, for example than the AVERAGE student at that school. It’s not going to help you one bit that the average student gets $10K but your kid gets zip. Averages are such that if your head is in an icebox and your backside in fire, you are, ON AVERAGE, just fine. </p>
<p>When your DD does get financial aid packages, they will almost certainly be integrated with the merit awards. If the merit exceeds what the college defines as need, your DD will likely get no financial aid. </p>
<p>No, it is not safe to say that schools NOT requiring PROFILE may be easier to get FA from. It depends on which school in each such grouping. As a group, those schools that give the most percentage of need tend to be PROFILE schools. I don’t know any school that guarantees to meet full need without PROFILE or some other such additonal fin aid app in addition to FAFSA. That is not to say that there are not students who do not get their best packages from FAFSA only schools. As a general rule, the better your kid’s stats, the better need package s/he will tend to get. NYU which was a FAFSA only school back a few years ago, gave several students I know their best aid packages. They were kids that NYU very much wanted, and using FAFSA only, home equity was not taken into account, NCP were not taken into account whearas that is not the case at most PROFILE schools. </p>
<p>I agree that merit awards may be a better way to go with likely income fluctuations. Be aware of the terms of the merit awards, however, and get some idea, the percentage of kids who lose those awards at that school. At one of our state Us, once you lose your merit money, that is it. Doesn’t matter what the reason is. And the school does not guarantee to meet needs, so it doesn’t mean that that wil be made up through financial aid. So something to consider, though not necessarily the deal maker or breaker is a very nice merit package at a school that guarantees to meet fulll need.</p>
<p>For many students the actual award numbers will be automatically changed once there is verification from the IRS as to what your returns actually turn out to be. This is a year that you try to do your returns as soon as you can. And, yes, many of us pray too.</p>