Hi, I wonder if anyone can provide some advice. I’m married, and we have 3 children. My daughter just entered college and receives the Pell Grant. Our house is currently paid off and it is under my wife’s name. However, we are now looking to purchase a bigger home to be now under MY NAME. Will this affect her receiving these Financial Aid benefits, and/or health insurances for them?
Are you keeping the first home or are you selling it to purchase the new home?
If you purchase a second home (in your name) while you and your wife are married and you don’t sell the first home, the second house becomes an asset that must be reported on the FAFSA. It will affect your daughter’s financial aid.
The FAFSA runs a year further behind than it used to - income or capital gains on your 2017 taxes will affect financial aid received in fall 2019.
The value of your primary residence is not assessed on the FAFSA, but if you own two houses or if you have more cash in the bank as a result of profits from selling the other house, the value of the asset will affect your award amount. Asset values are as of the day you file the FAFSA and do not run behind. Asset values are as of the day you file the FAFSA and do not run behind.
Besides FAFSA, do you need to complete any other financial aid paperwork for your daughter, such as the CSS/Profile application? If yes, do you know how the college assesses primary home equity?
Hi Sybbie, we wanted to keep it and rent it to help pay the new house’s mortgage. Would the old home be considered as a primary asset? Since it would be fully paid, and rented to help pay the current mortgage.
oh OK I see, so even if I sell my current home to pay it towards the new house, the cash I receive would be considered income even it I use it as a down payment for the new one, am I right?
Hi Belknap, no I don’t know how college assesses primary home equity. But besides this, the other paperwork I fill out for my 3 kids is the health insurance they receive from the state of Texas (CHIP), something a bit above Medicaid since I have to pay an annual fee. Would this probably affect as well?
It sounds like the only thing the school requires for determining need-based aid is FAFSA, which means that the equity in your primary home is not a factor. However, if you sell your current home and purchase a new home to use as your primary residence, the full market value of the current home will need to be reported as a parent asset on FAFSA, since that home is fully paid off. Also, you would need to report as income any money received from renting out the current home; it doesn’t matter that you would be using the rental income to help pay the mortgage on the new home.
If you sell the current home and use the whole sale cost to purchase your new home before you file your FAFSA…this new home will not be assessed as an asset. You won’t have money in the bank from the sale…so that won’t be an asset…and you won’t then own the first home anymore…so that won’t be an asset.
But…
If you keep the first house and use it as a rental property, the FULL value of that house will be considered an asset...because it's fully paid for,
If you sell house one...and don't use all of the proceeds from that to purchase house two...any money left in your bank account will be considered an asset,
If you sell house one but don't purchase house 2 before your kid files the fafsa, any money in your accounts will be considered an asset.
Yikes! thumper1 is, of course, right. I didn’t mean for the scenario in my post #7 to involve selling the current home, because OP’s stated intention is to keep it and use it as a rental property. So, change the word “sell” in the second sentence of that post to “keep.” Sorry for any confusion!
Just have to ask…this is apparently a low income family. Their current house is fully paid for. Their kid gets a Pell, and state supported health insurance.
They want to keep,the current house and rent it,
They want to buy a bigger house…and if they keep house one, won’t have the money from that sale to fund house two.
Given this all…
Is it advisable to assume additional mortgage debt and payment if income is low?
Where is the down payment money coming from for the new bigger house?
I guess what I’m saying is…financial aid won’t be affected IF the first house is sold and all the proceeds are used to buy house two which is the primary residence and isn’t counted on FAFSA.
BUT…a house mortgage will affect family finances and cash flow.
Also, the capital gains you get from selling house one is still income. It is not taxed if it is less than 500,000 and it won’t be a FAFSA asset if used to buy the next house, but it is still income.
OP: If you cannot afford the new house unless you keep your subsidized health insurance and subsidized college tuition, you probably cannot afford the new house.
Under this scenario, the new home would be your primary residence (I guess you and your family will move into the new home). Your primary residence is not taken into consideration on the fafsa.
However, your fully paid off old home will be an asset that will need to be placed on the FAFSA (parents assets are ~5.6%). This means even if your old $150,000 house that is fully paid off, your EFC wil increase by $8400 (making you ineligible for Pell)
In addition, any monies in rent that your and your wife receive will be income and must be placed as income on the fafsa, even if you are using the money to pay your current new mortgage.
Again, it is very likely that you will no longer receive Pell if your EFC is over 5,920k.
You the state of Texas and your subsidized med expenses are a different issue. I know in NYC, they do ask about real estate and the value of your home. With you having 2 houses; one being fully paid off and you using as rental income, will minimally affect how much you will have to pay for health insurance (or your eligibility for continuing to receive state funded health insurance).
Thanks Sybbie. I forgot to mention the fact that our current house is owned by my wife since she purchased it before we married. Also, my daughter in reality is my stepdaughter, but since my wife and I do our taxes jointly and claim her and our 2 kids as dependents, I guess that turns her into my daughter for these purposes right?
It does not matter that your wife purchased the house before you got married. You and your wife are legally married and living in the same home. It will not matter whose name the second house is in. You are married sharing a home, one house is the primary residence and the other is an asset.
It does not matter that she is your step daughter. For financial aid your child is your child through biology, adoption or marriage (your biological, step or adoptive child). You and your wife’s income and assets will be used to determine your daughter’s EFC and financial need.
Also keep in mind depending on where she applies some schools will ask for information from the non custodial parent (her biological parent) through the CSS non-custodial profile or their own financial aid forms.
If your step daughter resides with you and your wife greater than 50% of the time for the year prior to the filing date of her FAFSA…you are her custodial parents…and both of your incomes and assets are listed on her FAFSA form.
It doesn’t matter whether the house is in your name, your wife’s name or both of your names…your primary residence is not included on the FAFSA. If you keep house number one as a rental property, fully paid for…that will be considered an asset…and any rents will be considered as income.
It also doesn’t matter that your wife purchased this before you were married and it’s in her name. It also won’t matter if you put house number two in your name. You are married…and these properties are treated the same way regardless of who bought them…or that one was bought before you married. Doesn’t matter once you are married for financial aid purposes.
And for,the record…your income tax filing status doesn’t really matter either, you could file separately. The stepdaughter’s dad could declare her as a dependent. BUT if this girl is living with your wife and you greater than 50% of the time for the previous year of the fafsa filing date…all of YOUR income and assets…both yours and your wife’s must be listed,…because your wife is the custodial parent, and you are her spouse.