Owning more than one House affects the Free Application For Federal Student Aid (FAFSA) thereby, elevating the worth of net assets of the family. As in the FAFSA’ application’ and the review process of FAFSA, assets are a consequential factor, the amount of Federal financial aid qualified for can be possibly raised by the value of such assets. The decrement in asset valuation is achievable. But it may take away your adequacy of financial resources and the readiness to transform and (/or) transfer ownership of such assets among various financial instruments and (/or) individuals.
How Owning More Than One House Affect FAFSA Application?
House factors weighed in the FAFSA Methodology
There exists beyond one variable of ownership of a house that can affect to exert the influence on FAFSA in respect of the second house. All of these factors may impact on the designation of the house as an asset, and the quantum of the effect that the house has over the application of student aid. The higher the value of the asset and (/or) income extracted from the second home, the nearer is the association of ownership is to the FAFSA applicant, and the higher the possible decrement in the qualification(s) of FAFSA. The following list contains the dimensions of the second homeownership, which can impact on FAFSA.
- Value(s) of House
- Earnings from the house
- Owners documented
- Appreciation of property
- Location of the house
It is but natural that the more expensive is the property, the higher will be the value of the asset and thereupon, its impact on FAFSA. Besides, in case of rental property or property on lease is utilizing the property of the real estate, the income gained from such acts may also influence the qualification of the student loan. Similar to this, if the house is worthy of appreciation, this may be a factor in the ‘Federal Methodology’ of FAFSA.
If in case the ownership of the house is not possessed by either the FAFSA applicant(s) or the parents of the applicant(s), then on the application, the importance of that house is probably reduced. At last, if there is ownership of an overseas house in another jurisdiction through the international business trust, it may not qualify as ownership as far as it is the concern of FAFSA. Furthermore, the variation in the assessed value and thereupon further factoring into FAFSA depends on the place of the second residence, i.e. either domestic or international location.
Affects of ownership of the house on FAFSA
If a specific house is relevant as per the FAFSA procedure, it can implement a rise in the ‘Expected Family Contribution‘ (EFC). In such a case, there can be numerous possible consequences over the application of student aid. Usually, the higher the EFC, the fewer chances of FAFSA’s getting approval, and in case if it gets approval, the amount qualified for may diminish. Following are some of the factors of FAFSA that may get influenced by the ownership of a second house:
- Qualification with respect to Financial assistance
- Increment in value of student financial aid
- Consideration for Federal and State grants
- Access to further education or study programs
- Entrance into the Federal Work-Study
Any home owned by the student or the immediate family of the student that is dearly priced could debar the applicant from the approval of FAFSA to the degree permitted by the procedure of FAFSA. Further, if the house becomes a dull consideration either due to decreased value or bluntly relevant ownership, this may help the applicant to be eligible for a greater amount as assistance. Such assistance is inclusive of both Federal and State grants and (/or) entry into Federal programs of Work-Study apart from the approval for loans of subsidized and non-subsidized nature. Along with the qualification and improved eligibility, the student holds the possibility to seek admission and enrollment in further study programs.
Techniques to reduce house ownership’s influence on FAFSA applications
Any family having ownership of a second house not necessarily has to give up on FAFSA. It is so because there are some techniques and strategies of finance that may limit or remove the financial consideration of the second home in the ‘Federal Methodology.’ It typically utilizes amid the FAFSA review process. If an applicant follows the accurate steps, the second house doesn’t pose to be a problem for the applicants of student loan. It is beneficial to keep some of the financial techniques in mind, which are as follows, and it can also demand some time for preparation.
- Transfer of ownership to a business, or
- Sell out the second house
- Reinvest the proceeds arising from the sale in non-eligible assets
- Temporarily forfeit ownership, or
- Convert the house into an entity that is trust-owned
If the second house is registering to have business ownership, it may not be considered as a personal asset of the applicant, depending upon the structure of the respective business and/or how the FAFSA procedures perceive the business structure concerning the ownership. Moreover, if the second house emerges out as a financial hurdle, it can be scalable hence omitting its effect on FAFSA. Though, if the house is already sold within the same or previous assessment years in respect of the application of Federal assistance, it may escalate the owner’s existing capital gains and the Expected Family Contribution in a diverse way. Thus, it is a bit more advantageous to sell the second house in an assessment year that doesn’t come under consideration by FAFSA and then transfer the proceeds to any of the non-eligible assets like a retirement account and (/or) personal assets.
Transfering the second property into the custody of a trust or business owned trust may lessen the eligible income gained from the property considered in the procedure of FAFSA. Furthermore, in case if the chief trustee of the trust is both the business owner as well as the parent of, or the FAFSA applicant itself, the ownership of the house can be revertable towards the respective actual owner if or when it no longer has any sort of impact on the process of FAFSA.
As per the application for Federal Assistance, the house is less probably regarded as an asset if the second home’s ownership is with another party on a temporary basis. Such a condition is being executed by filing a property transfer affidavit, a memorandum of understanding (MoU) and (/or) agreement or contract of repurchase, apart from a quitclaim deed and forward contract to safeguard reacquisition at a future point of time and avoiding any sort of indefinite terms. This last effort of transferring the ownership of the asset is quite involved i.e., time-consuming and may also require to pledge something as collateral for the mortgage.
Subscribe to Moneymint Weekly
Every Sunday we email people like you with top tips, insights and opportunities to manage your finances and build your online business. No hype, no scams, no fake gurus. Sign up below to get the next one.