Ack! Will renting our home out instead of selling it increase our expected financial...

[Sierra]

I've been accepted to Yale (one year deferment) and we need to move in order for me to go.

Even though we bought our house after the market began to crash, our realtor told us she thought it was doubtful we could sell our house without taking out a loan to make the sale possible (sell at a loss). So we've decided to try to rent it out first.

I just got our first call from a serious renter, and suddenly it hit me. If we rent rather than sell, is that going to be considered an investment and increase the "expected family contribution" on the FASFA? For what it is worth, we'll be able to make enough on the rental just to cover the mortgage.

[ccohenou]

I couldn't tell you for certain - but when we rented, it didn't generate much actual income for us. If you still have a mortgage on that house, then what you pay for the mortgage and any other house-related expenses is deducted from what you receive in rent - if there's not much/anything left over, there's no increase in your income, at least with regard to the IRS. You'd have to turn a profit for it to be investment income.

[Sierra]

Thanks for your response. I ended up calling the FASFA office this morning, and it is bad news. If I am not living in the house (I wonder if living there in the summer counts?), it is considered an investment. So I have to report the net worth of the investment. To do so, I have to report the difference between the estimated value of the house and what I owe on it still. She suggested I run a corrected FASFA with those numbers to see how it would impact me, and then run another correction to change it back to my current situation. I ran it, and my "expected family contribution" goes up $1000-2000. Urgh. Yet selling it still comes out as more expensive because there is a cost to selling it even assuming I can get a buyer for what it is worth. I feel like I am between a rock and a hard place. I did contact the financial aid person at my school and am waiting to hear back on her advice.

[Linda on the move]

Originally Posted by Sierra

If I am not living in the house (I wonder if living there in the summer counts?), it is considered an investment. So I have to report the net worth of the investment. To do so, I have to report the difference between the estimated value of the house and what I owe on it still.

I think a decent accountant could help show it as a loss. If they only way you could sell your house is for less than you owe on it, you don't have any equality, therefore, the difference between the estimated value and what you owe is a negative number.

[Carita]

ita with linda

[Qestia]

also your financial aid person will be able to use "professional judgement" to overwrite the FAFSA generated EFC if you can document how the EFC is not realistic (ie you're using all the rent to pay the mortgage).

[Sierra]

Thanks all. I think the idea of the "estimated worth" is tricky. The tax assessment estimates it at one thing (which I could probably question but haven't had time to do), but my realtor's recent emails seem to indicate something else. She was very frank in saying what she thought we'd get based on comps in the area, and it looked like a loss for sure. Linda, your point about the accountant is a good one. In any case, I spoke with the school's financial aid person today, and she said it won't impact my scholarship because they don't use the FASFA to determine that. Phew. She said it may impact the loans for which I am eligible, but she is not sure how much of a difference it would make and won't have exact figures for me until next year. I'm glad I have this year to figure this stuff out.