Will a new house cause me to lose scholarships?

Paying for College
21

^^^
I wouldn’t bet the restaurant on that.

<<<in order="" to="" buy="" it,="" we="" would="" have="" get="" loans="" from="" family="" members="" and="" pay="" them="" back="" later;="" however,="" because="" the="" will="" not="" be="" through="" an="" institution,="" it="" appear="" that="" had="" suddenly="" acquired="" $250k,="" making="" my="" parents="" more="" than="" able="" for="" college.="" i="" am="" strongly="" against="" buying="" a="" home="" at="" this="" time="" decision="" is="" too="" hasty="" cause="" go="" into="" hundreds="" of="" thousands="" dollars="" in="" debt="">>>

Why aren’t there more posts questioning the craziness of all that’s been said?

Family, that owns/operates a restaurant, claiming to earn less than 25k per year (call Restaurant Impossible)
They’ve been lenders to other relatives, while earning less than 25k per year.
While renting, been saving for a home on an income that many families could barely make ends meet.
Will borrow up to 250k from relatives to buy 650k home in NY
**Obviously they expect to qualify and pay the 400k mortgage…that would more than eat the $25k income.
The relatives naturally expect to be paid back, so high payments there as well.
Obviously they would expect to pay the prop taxes and insurance…prob at least 15k per year.
And, yet, they still need to eat, pay utilities, healthcare, transportation, etc.

**this suggests that they have two sets of bookkeeping…one with real income to show lender…and one for tax purposes.

I realize that this is a teen posting and naturally she believes all that she’s been told. But this is a smart student. I advise her to “do the math” and she’ll realize that there’s no way that this adds up.

Other posts indicate that she wants a prestigious Univ…that generally means a CSS profile school…they won’t consider this family low income. They’ve heard this song before.

I’m not posting this to be mean. I’m trying to give the student a heads up so that she’s not shocked next spring when the aid doesn’t come.

The problem isn’t just the purchase of this expensive home. Even if her parents don’t go through with that, the family has more money than she thinks

22

Note that the $25k income is likely what is on record. I know may people worked in restaurant do not report tips in cash in their tax return even it is illegal. I know one family own 3 apartments after working as waiter/waitress for decades. The tips income is several times of the income on record.

23

I agree that this definitely sounds like a crazy scenario, though there is a lot that we (and probably the OP) don’t know. Such as how much the family has saved up. And if they really will have a large mortgage, or will somehow buy the house without one. Or how much the rental income will cover their costs, which affects whether this is even possible, and what their future declared income will be.

This is not to say it won’t all affect the financial aid–it almost certainly will–but it’s hard to even tell what the real situation is.

24

I agree with @mom2collegekids that this student needs a much clearer picture of her family’s finances. This time last year she was wondering when/how to tell the boss at the grocery store where she worked that she intended to quit when school started in the fall. She said she didn’t want to work 15 hours and “didn’t care” about the money ($7.25/hour). As a New Yorker, it doesn’t make sense to me that a family (of at least 4) earning “less than $25k/year” would so easily walk away from an extra ~$5k/year.

OP, if you apply to schools that require the CSS Profile, they’re going to dig down deep into your finances. It’s important for you create some sort of budget, but since your family owns a business net price calculators won’t be accurate. You really need to find out how much your parents can/are willing to pay per year without borrowing. You can take the federal student loan (~$5500/year), and if you work summers you can probably earn another ~$3k. That gives you ~$8500 plus whatever your parents can contribute. I think you probably need to pursue full tuition scholarships.

You might qualify for a Pell grant of up to $5k/year and a NYS TAP (tuition assistance) grant (or the Excelsior tuition scholarship if you attend a SUNY), but that depends on actual income. As a state resident, I’d be pretty unhappy to learn that your parents were writing off enough income so you qualify for free tuition while they’re qualifying for a mortgage on a $600k house. [Payments on a $400k mortgage (30 years @3.25%) would be $1740/month. If they can pay that, how is their total income less than $25k/year?] In any case, you can’t depend on qualifying for those grants. You really need to start with finding a financial safety or two.

25

@austinmshauri

The family doesn’t live in NY now. They plan to buy this property and move there in a few years…in the meantime, they will rent it.

From post 4:

To the OP…I would strongly urge you to discuss college finances with your parents. Find out how much they think they can contribute towards your college costs. Yes, the family finances sound a bit complicated…and convoluted. But at the end of the day…all that really matters is how much your parents CAN and WILL be able to pay to fund your college costs.

Find that out.

26

Well, that seems like it would be worse. If they buy it but don’t live in it, isn’t the equity counted for financial aid?

27

Yes…so if the rental property has. Down payment of $250,000, presumably that $250,000 would be the equity in the property…and would count as an asset. Plus the rents wouldmbe income.

But the bigger question…the family is borrowing $250,000 for the down payment. The mortgage would then be $400,000. What lending institution would lend $400,000 to folks with an annual income of $25,000.

Something isn’t adding up.

But back to my advice.

This student needs to talk college finances with the parents. Find out what the parents can and will pay for college.

28

In order to qualify for a $400k loan at 3.25%, a family would need a minimum income of $75k, and that’s if other monthly expenses are $0. If monthly expenses are $1,000, the minimum income jumps to $91k.

I don’t think this student has a clear picture of her family’s financial situation. I agree, she needs to find out what her parents can pay.

29

I’ve stayed out of this because there is so much that doesn’t add up but I’ll toss out the one that’s bothered me from the start. I think the $250,000 is the loan and the family is paying cash for the rest. OP never mentions a commercial loan and as we know there is no way they would qualify for one. Of courese the teen isn’t privy to all details but it is the only thing that adds up.

And if this is the case, the family has a half million in assets and rental property. FA is irrelevant.

30

[QUOTE=""]
I think the $250,000 is the loan and the family is paying cash for the rest. OP never mentions a commercial loan and as we know there is no way they would qualify for one. <<

[/QUOTE]

Yes, it does now appear that the family has saved $400,000 towards a house and they are going to borrow another $200,000 from relatives and the relatives trust them because this family has lent money to them before.

Right, they couldn’t really show true income to the lenders without exposing themselves to possible tax issues.

So over a period of 15 years, this very low income family has managed to save $400k towards a home.

Sure that sounds believable…not

That would mean saving over $23k per year…yet the family earns less than 25k…hmmmm.

Nobody is that thrifty

Either way, this student is not going to get the desired aid at a prestigious school. These CSS Profile schools have seen enough of these situations…people owning businesses that deal a lot with unreported cash, so income appears very low,

There was another similar case not too long ago. Family claiming very low income, owned a dry cleaner I think or maybe a convenience store. Harvard or MIT wouldn’t give aid because reported info was suspect, too many unanswered questions, suddenly the family withdrew their aid request and paid full freight.

31

We don’t know how much they are expecting to rent the house for. That would be counted by the bank in determining eligibility for a mortgage, or in being able to pay for the expenses. If they do indeed have enough saved up to only need to borrow from the relatives, then the rents will be more likely to cover the expenses on the house. However, if this is true, they have a large asset (either bank account or house), which becomes an issue for financial aid.

32

Commercial loans are much more stringent than home mortgages. Rent is uncertain. I doubt a bank would count potential future rental income in the qualification.

33

A single family house isn’t generally a commercial mortgage.

And yes, for commercial mortgages for, say apartment buildings, the rents are counted. That’s the point.

34

Can you purchase a single family home with a conventional mortgage when you will not occupy it immediately? That is my point. An apartment building has a record of occupancy if it’s already developed and with 70% occupancy still brings in revenue. Depending on the real estate market, there are many single family homes sitting vacant with for rent signs.

Regardless the numbers don’t’ add up and I feel sorry for the OP because it’s not the OP’s finances but rather the parents.

35

@sportsman88 yes you can. People buy second homes, or rental property w/o commercial mortgage.

However, often the interest rate is higher when the property isn’t primary home.

36

And often the down payment is much more than a occupied home. There are many mortgage types not available for non-owner occupied homes (FHA, VA).

But those are problems for the OP’s parents to deal with. His question is whether buying an investment property will affect financial aid. Most likely, it will cause a change in need based financial aid (more assets, less aid). But it is up to the parents how they want to handle finances.

37

Everyone, please keep in mind that the figures stated in my original post are relative. I am not privy to all the details of my parents’ finances.

38

@xxluvforeverxx yes, it appears that you aren’t aware of the details. And that’s understandable. Parents don’t often share the nitty-gritty.

Frankly, it kind of sounds like your parents may take a “draw” of $2k per month (after taxes) for y’all to live on. If so, that’s not the same as having an income of less than $24. Their car or cars may be “owned” by the business…same with cell phones, computers, etc.

However, they should have provided you a bit more info, or at least said, “honey, you’re not going to qualify for as much as aid as we’d like because of our savings, assets, and the restaurant business,” so that you wouldn’t be pursuing a path that likely will not work out unless your parents are willing to pay for a good bit of your education.

So, if you want to apply to some prestigious schools, fine. But be sure to explain to your parents that for you to get aid they will have to provide EXTENSIVE information about the business and other assets. They may refuse to do that.

If your parents look over the CSS forms and decide that they won’t fill those out or if they realize that you won’t get much aid, then you need to know that now so that you can apply to schools that will be affordable thru assured merit or whatever.

CSS Profile schools require FA forms that go into a tremendous detail and require documentation.

39

You made the title of your thread

Will a new house cause me to lose scholarships?

Without using real numbers and being privy to more (a lot more) of your family financial information, there is now way that anyone can give you anything close to an accurate answer to your questions.

40

"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"

That’s pretty much what I thought while reading