Hello.
I am currently filling out some financial aid forms, and why do many of them ask for the market value of your home? My home’s market value is currently relatively high (600,000) but our income is low. Is this going to limit the amount of aid I receive? Are they going to expect that my family is willing to sell their home to pay for my expenses? I don’t understand.
Some schools, but not all, count the equity in your home as an asset. If it is alot then that can reduce institutional aid.
If you have home equity (current market value of home minus balance of mortgage) then you might be able to borrow against it.
If your home has a lot of equity, then some schools will expect your parents to borrow against it.
Do your parents have a business or take business deductions? How low is their income?
Do,your parents have a mortgage on that $600,000 home? How much is that?
Most universities consider the equity you have in your home, that’s why the question exists.
Some universities consider the equity in your primary residence as part of their formula for need based aid. This question is not on the FAFSA at all…so schools using ONLY the FAFSA don’t consider home equity. Those are the vast majority of schools.
They are making inquiries into the financial lives of people in regard to how they have “chosen” to create or structure their assets. Income is the predominant consideration when it comes to financial aid determination, but those with business’s, farms, investment properties and non qualified investment accounts will be subject to greater considerations. The assumption has to do with the “choices” people have made. As a business owner can you alter the amount of income you take from it? (yes you can) this is an example of what I was referring to.
Someone earning $75,000 a year but is sitting with $600,000 of equity in their home is in a different financial position than the $75,000 a year income earner who has 0 equity in their home or worse yet is upside down in equity (meaning the amount owed on the house is greater than it’s market value)
I am not suggesting that I necessarily agree with all of these things but they are the way they are and they are intended to arrive at a true measure of someones financial circumstances relative to everyone else’s. A school shouldn’t be providing aid to families who have chosen live in a manner that exceeds particular norms. Such as living in a $600,000 home when they could live in a considerably less expensive home. They care not for where someone lives and the cost of living in a particular area. They are averaging across the cities and communities in our country not to just where we may live.
After and If you get over the seemingly harsh reality of these things it does make sense. As a business owner and the owner of a two family rental property I really don’t care for it, but I get it, and I can’t refute the logic of these process’s, and wouldn’t expect a school to change their criteria to be more receptive to my individual circumstances.
In it’s simplest form they are saying why should the equity in your home be given a pass when you could have been saving specifically for college versus paying off or building so much equity in your home.
Some people have large equity in their homes simply because they bought them a long while ago…and when prices were lower. In CA, for example, a family can have a house worth a million dollars on equity now…that they paid less than $200,000 for in 1995.
The vast majority of colleges don’t consider primary home equity at all…because the vast majority of colleges use only the FAFSA…and that does not ask anything about your primary residence…at all.
The schools that use the Profile or their own form to get home equity info, use it in a variety of ways. Some don’t use that info at all. Others have varying caps on the % of your income that they will tap with that home equity. There are some that will exoect you to take home equity loans out to help pay for college. YMMV depending on the school.
Yes, I am aware of all of this.
Home equity is still an asset that is potentially available for use, subject to what ever criteria and caps a particular school adheres to. How you came to arrive at the equity in your home does not matter to the schools who include home equity in their aid calculations.
I find that folks get defensive when they talk about things they :had: to do, and I point out that in fact it was a choice. My students get like that all the time
I have to miss class Tuesday. I’m driving home for a dentist appointment.
Why didn’t you schedule it during a break?
My mom scheduled it for me.
You’re 19 years old. You should make your own appointments.
I have to do what my mom tells me.
You choose to do what she tells you.
[Blank stare]
Anyway, no surprise that they grow into parents with denial issues.
OP, generally your family’s income is the biggest factor in need-based aid. Schools that use Profile may expect that your parents can draw money from non-retirement savings, home equity, or other investments. Those schools often exclude a certain amount of home equity from these calculations–something like 2.5 times the amount of your family’s income is typical. Not a problem until you are admitted and receive an FA offer, at which point you can ask for a review if it’s not sufficient. If you’re not admitted, or you’re admitted with enough aid, no worries.
A slight detour from the OP’s issue: this brought up memories of when I got my freshman year aid offer for Berkeley back in the 1980’s. My parents were lower income/high home equity; I did not take part in filling out the FA forms but I remember my father talking about how the expectation was that my parents would borrow against their house. As thumper says, someone can have a great deal of equity because the real estate market is strong.
It’s a frustrating situation for those families if the only option is to take out a loan against the value of the house. Good financial advice is that you never, ever borrow against your house for something that’s not a capital improvement. For low income families, it’s even more important that they don’t make financial bets that might result in losing a home to foreclosure if they can’t make the loan payments. Selling and downsizing is a bad option because of the cost of transaction fees and moving costs, the increase in property taxes for a house that may be smaller than the current one, and/or paying taxes on the profit–and that profit is what is supposedly going to be used to pay college tuition.
I agree that the family with home equity is in better financial shape than the family with similar income and no equity. What I disagree with is folks airily saying “well, they had/have a choice” as if a family can always easily choose to put money in one pot or another.
Need-based FA can’t possibly be “fair” to everyone…but let’s remember that this isn’t always because people made the wrong choices. Sometimes the rules benefit you, sometimes they don’t.