How does having a home equity line of credit versus home equity loan affect EFC on FAFSA?
You should post this in the Financial Aid forum.
A home equity loan will hand you a big pile of money up-front. If that money is in your bank account on the day you fill out the FAFSA, it will count as an asset, and there is nothing to offset it because house equity is not considered. So up to 5.6% of it could be added to your EFC.
If you have spent the money from the loan on something before you fill out the FAFSA, then it does not impact your EFC.
With a line of credit, you have no money until you withdraw some, so no FAFSA implications unless for some reason you draw on the credit line and just let it sit in your bank account.
Just a reminder to anyone with a home equity line of credit - if you haven’t used it and don’t intend to, be sure to close it down. When we applied for a mortgage when we were moving in 2015, we had completely forgotten about a very old line that DH had set up over 20 years previously but never used. It was still sitting out there and the mortgage lender needed to clarify it. The bank had gone bankrupt within a couple of years after taking out the line, but fortunately our lawyer was able to track down the current holder and get it closed.
Most reputable lenders nowadays will automatically close HELOCs that are over 10 years old, I believe, unless you reapply. A line of credit has to be closed if you sell your house - can’t transfer the title with encumbrances on the property. Whatever entity assisted in your sale did a sloppy job.
The HELOC had been created decades earlier some time after we bought our old house and was never closed, possibly because the original bank had gone bankrupt. So I don’t understand who you think did a sloppy job? We were very happy with how it was handled when it was discovered; we had totally forgotten about it.
The attorney or title company that handled the purchase of the house that you sold. HELOC is an encumbrance on RE, and must be removed before a good title can be obtained.
I conflated the two processes; it was when we sold our old house that it was discovered. Iirc, it was found just days before closing. My point is that one needs to keep track of unused HELOC’s; they may not have automatically closed.
Ah makes sense then. Thanks! 