How does your mortgage factor into financial aid?

[thisSHHHisBANANAs]

<p>MY parents want to buy a new house that’s worth about a million dollars, thus burdening us with a huge mortgage. They think this will get us more financial aid. Does it?</p>

[somemom]

<p>It does not factor at all for FAFSA schools, in fact you could dump in cash and pay off your mortgage, effectively hiding the cash.</p>

<p>PROFILE schools will ask about your home value andmortgage. If you have the income to make the payment on a huge mortgage, say $850k at an interest only rate whould still be around $3200 monthly and that would be a foolish way to set up the mortgage, then that is not really going to help you as your income will be high enough to require you to pay $. They will also want to know when the home was purchased and not be thrilled to see some one encumbering themselves that way, right before they need to pay for college.</p>

<p>It is good to structure your assest, for instance cash going to pay down the mortgage with a FAFSA school, if you don’t have to have the cash. It is not good to go out and do things you would not have already in hopes of avoiding financial aid. Other than Princeton adn UVA access UVA program, I do not know of any shcool which do not include parent EFC and loans in your package, Even with a low EFC you might be exected to take $5-10k in loans. So while shhifting assets to cause them not ot be counted can be fine, don’t do anything which harms your ability to function as a family.</p>

[sybbie719]

<p>If you are applying for schools that request the CSS profile, they will aks you when you purchased your home, how much your house is worth and how much you still owe. </p>

<p>I agree with somemom tha this may come back to bite you as if your parents are purchasing a $1million home (not a necessity), the college may see it as money that they could have used in paying toward your education. You could be stuck between a rock and a hard place so even if admitted, your parents may not have the money to pay because they have poured all of their cash into a house.</p>

[Squid]

<p>gosh, and the house I’m looking at is only 175K and I think that’s a lot! </p>

<p>I know nothing about this BUT I’d say if you live in a million dollar house, the fin aids gods might not be pleased to offer…just my 2 cents…</p>

[barkowitz]

<p>This is how we deal with this at MIT. It comes from my blog. Other schools may tweak this a little by either not looking at income and therefore having no cap, or by using the highest of projected or reported:</p>

<p>

One particular asset is included only in the CA formula, and not in the FM formula. This is the home, or the primary residence. At MIT, we do use a number of modifications to your reported information to arrive at a reasonable value, but the home is a factor in our analysis. Many other institutions may use similar or very dissimilar processes, so you may want to confirm with the institution what policy they have in place.</p>

<p>Why is the home not included in FM? In 1993-94, the Federal Government removed the home from the financial aid formula. This was done for several reasons, I believe, none of which make particular sense from the point of view of assessing a family’s ability to pay for college. The action of removing this asset from the formula was to, in effect, pretend there is no difference in a family’s financial strength whether they rent an apartment or own their home. Private colleges determined that this analysis wouldn’t work for them, so they created their own process to analyze financial aid (therefore the birth of the Institutional Methodology). There are very many other differences between IM and FM, but the issue of home equity serves as the starting point for their divergent paths. A history book on this subject is just itching to be written…</p>

<p>So enough history, what does MIT actually do?</p>

<p>We start by looking at what year you purchased your residence and how much the purchase price was in the year in which you purchased it (I say you when in fact, more than probably, it is your parents’ house). Based on a table which eliminates regional variation, we determine how much the property should be worth today. This table uses a national coefficient so that parents are neither penalized or advantaged by living in an area where values over time have deviated from the national norm. As an example, if you purchased your home in 1988 for $100,000, we would use a coefficient of 1.76, so the value would be $176,000. (And if you are interested in finding the rest of the chart, it is not publicly available. The underlying information comes from here though.) </p>

<p>Once we have the value as determined by the multiplier, we compare that to your stated value (on the Profile application) and in most cases will use the multiplier value (we may use your stated value on a case-by-case basis, usually if it is lower than the multiplier value).</p>

<p>The next item we examine is whether you could access the value in your home. To determine this we cap the total value based on your total income. This cap is 240%. So, a family who earns $100,000 a year would have their home value capped at $240,000. In other words, we cap your home value at 2.40 times your income. This is to protect families who, due to real estate market growth, live in a home that they could not afford to purchase today. We cap the value of the home at this amount to account for the fact that a family could not afford to qualify for a mortgage to access equity higher than this level.</p>

<p>We take the lower of these two numbers into account as your total home value, and then subtract debt from that to determine the home equity.

</p>

<p>Hope this helps.</p>