My parents make less than $25k a year and they have been saving up to buy a house; however, they are contemplating whether to buy the house my senior year right before I start applying for colleges and financial aid. I know that with my family’s financial status, I will have quite a bit of scholarships from the college as well as from FAFSA. My family currently rents a house and has few property besides two cars. The homes my parents are looking at are in New York priced around $600k. In order to buy it, we would have to get loans from family members and pay them back later; however, because the loans will not be through an institution, it would appear that we had suddenly acquired $250k, making my parents more than able to pay for college. I am strongly against them buying a home at this time because the decision is too hasty and would cause my family to go into hundreds of thousands of dollars in debt while I am attending college. Will the purchase cause my family’s financial status to appear to be well off and cause me to lose scholarships?
I don’t know, but your parents might want to think about if now is a good time to buy a house and take out loans from family.
You are going to be in college for 4 years at least, and probably not all costs are covered by scholarships and grants.
If they only make $25,000 a year, it could be tough for them to help you with college costs, and pay the loan payments on the house.
Also property taxes in NY for a house of that price, might be expensive.
Your parents own a restaurant, don’t they? I suspect that will affect how much aid you get more than buying a house will.
If the purchase is for a primary residence, then the answer in all likelihood is NO. If they are going to put money down on the purchase that is currently in savings, then that could benefit your financial aid status.
But I have to wonder how your parents with an annual income of less than $25k a year can afford a $600k house. In pretty much any circumstances, your relatives would be foolish to loan any money for this. And as noted above, the property taxes on a $600k property will be hefty. How will the property taxes and other costs associated with home ownership, including large mortgage payments, be paid for on an income of less than $25k/year?
@BelknapPoint The home would be for primary residence in a few years but for right now it would be rented out because we do not live in New York but are planning on moving there in a few years. My parents have been saving for fifteen years now, and most of my relatives would loan out of courtesy and trust as we have loaned to them before. I expect we will be paying the house off for many more years to come. However, do you know if having this property (which would not be listed as the primary residence) and the sudden influx in money be detrimental to my financial aid?
Owning the house as a rental property as opposed to as a primary residence may be detrimental to your need-based financial aid, depending on many other factors, including what schools you apply to and where any down payment for the property (if there is any) would come from. If by “sudden influx” you mean money that is loaned to your parents to buy the house, that should not be a factor (unless the loan is made and then forgiven).
Where is the money they are saving for a house? And how much are we talking here…
Money in regular savings will count as an asset for FAFSA purposes. But home equity in your primary residence will not count.
BUT if this is NOT your primary residence you will have two issues…first, the equity in the property will be fully counted as an asset by FAFSA and Profile. Second, the rental income will be considered income.
If you are applying to schools that use the CSS Profile, your home equity will be considered to some degree. This varies by college. But so will the value of the family business.
Keep in mind also that there are business and rental property deductions that are permitted for IRS purposes but are NOT considered for financial aid purposes and will be added back in as income.
It will definitely have some effect, though it is unclear how much. Right now, your parents are renters with a certain amount of assets saved up. Financial aid offices will probably assume they can contribute a certain percentage of those assets each year to your education. (I’m assuming they’re not protected retirement assets.)
If they buy the house, those assets become equity in a rental property, which would be considered somewhat differently. (I don’t really know if that would be a plus or minus.) And if they have an additional $250,000 in equity from money loaned by friends and relatives, that would also be considered when determining financial aid.
It sounds like you’re saying the loans from others would not be legal agreements like a bank loan. If so, that would probably affect your financial aid more. If your parents had a $250,000 mortgage from a bank, it would be considered like they don’t really own that $250,000 part of the house (because they don’t–the bank does). But if people just give them that money without any legal agreement to be paid back, it could be considered that your parents own that $250,000 (basically, they do). I don’t think financial aid offices are likely to go along with “We don’t really possess that much of the house because we promised some people we would pay them back someday.” They may want that verified.
Another thing that affects financial aid when owning a rental property is that the property may give a loss or a profit to your parents’ income each year. If it’s a loss, that could actually be good. And with the expenses of starting up a rental property and the yearly depreciation you get just because the house is getting older, a loss could happen. On the down side, if they have to put money into the property, they won’t have it for college.
You should probably call up a financial aid office at some school you’re interested in and ask how they treat things like assets of this kind. It’s pretty complicated.
Ok…this student says the family income is $25,000 a year.
- Might the OP qualify for the simplified needs test or auto $0 EFC? If so, assets would not be counted.
They would need to be below the income threahold AND have one of the following:
Parent dislocated worker (since parent works, that wouldn’t be it)
OR
Ability to file a 1040A or 1040EZ tax form (not likely as they are business owners)
OR
Qualifies for a means tested benefit like free/reduced lunch, SNAP, Medicaid. OP…do you qualify for any of these?
But there are other questions…
A $600,000 rental property will require a larger down payment than a primary residence. In addition, with $25,000 income…just HOW will the parents show they are qualified buyers? Money that mysteriously appears in your bank account must be accounted for when applying for a mortgage.
And also…there is NO auto $0 or simplified needs test for,schools that use the CSS Profile.
To be honest…this sounds like a financial house of cards ready to tumble.
@thumper1, For the simplified needs test, do they use the net or gross income from their restaurant business?
I believe the simplified needs test uses adjusted gross income.
Yes, it uses AGI.
Sounds like the family owns a business and pays itself 25k per year. Is that what’s going on.
No one is going to believe that a family with that low of income can buy a home that costs that much w/o them hiding income or some game. Even the idea of borrowing from relatives will sound shaky because unless the family is insane, no one lends 250k to a family who earns only 25k to buy a home that costs 650k in NY…how would the family pay the mortgage, pay back the relatives for the 250k down payment, pay property taxes and home insurance?
How much do you think the property taxes alone would be?
New Yorkers…how much would the prop taxes be? How much would home insurance be there
Missed this…
And…they have… >>> and has few property <<<
So they own other properties, too?
How do you know this?
Thumper is right… Getting lots of money is not a given.
What schools are you applying to? If they use CSS Profile, you may not get much aid at all.
.>>In fact, in many New York counties (outside of NYC) have rates exceeding 2.5%, double the national average.>>>
So, the property taxes on the home could be…over $16,000 per year…and that doesn’t count the mortgage or the paying back the relatives…or the home insurance.
I don’t think they’re going to believe that your family earns less than 25k per year.
What colleges are you applying to?
<<<<<<<
care about reaching my goal of being admitted into a prestigious university.
<<<<<
I think the only prestigious univs that don’t use CSS profile are Berkeley, ucla, Chicago, and Princeton, Princeton has its own forms so it will also consider the business. the UCs won’t give aid to OOS students. Don’t know how Uchi would handle the business, i think they may have their own form too.
The rest will use CSS profile and the business will likely keep you from getting much aid…along with the other properties.
Do you rent out those other properties?
Do your parents own the restaurant building? Or are they renting that space?
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And…they have… >>> and has few property <<<
So they own other properties, too?
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I think the poster actually meant “assets” when they said “property” (since they mention cars)