Home equity may impact child’s college financial aid
Question: Our daughter will be going off to college next fall, so we are beginning the process of applying for financial aid. My wife and I don’t have much in the way of savings, but our house is worth about $125,000 more than we paid for it about eight years ago. Will the equity that we have in our home affect her ability to get financial aid?
Answer: It largely depends on which college or university that your daughter plans (or hopes) to attend. Some schools don’t expect parents to tap their home equity to pay for educational expenses, but others will indeed cut the amount of money that they will loan or grant if the family home is worth much more than was paid for it years earlier.
The majority of public schools, including most state universities, do not consider a parent’s home equity when deciding how much financial aid that a student can obtain. But it’s a different story at many private schools, where the insti- tutions not only ask about the parents’ assets, but often expect the folks to tap some of it to help pay college bills.
The admissions or financial-aid office at the college your daughter wants to attend can tell you whether the equity you have in your house will be included as part of its financial-aid calculations.
If the school will indeed consider your home equity when doling out aid, make sure to ask about any exceptions or exemptions that can help to obtain the best aid package that’s possible. For example, some schools will overlook a large amount of built-up equity if, say, a parent is disabled, retired or is unemployed.
It might even make sense to tap your home equity now and use the proceeds to make a large contribution to a tax-advantaged retirement account before you fill out your daughter’s financial-aid application. Though some schools now expect parents to use their equity to pay for college expenses, few expect a student’s mom or dad to raid their retirement nest egg to cover the cost. IS SECURITY DEPOSIT ‘INCOME’ FOR LANDLORD?
Question: We rented out our home earlier this year instead of selling it. We know that we have to declare the $1,100 that the tenants pay each month as rental income on our next tax return, but do we also have to declare the $1,100 they gave us for their security deposit?
Answer: No, you don’t have to declare the $1,100 security deposit as “income” — at least, not yet. But rules published by the Internal Revenue Service say that you will have to pay taxes on the deposit you received if the tenant later defaults on the lease and you use the money to cover the lost rental income.
Consult a tax accountant or similar professional for details and to make sure that you claim all of the special write-offs that landlords can take when tax season rolls around. PROPERTY INSURANCE AND FORECLOSURE
Question: I have had some financial setbacks lately. Though I have managed to keep my mortgage payments up to date, I haven’t paid my property insurance for several months, and the insurer has already threatened to cancel the policy. Now the bank has sent me a separate letter stating that it may foreclose if I don’t get the insurance re-instated. Can the bank legally foreclose?
Answer: Yes, your lender has the legal right to initiate foreclosure proceedings.
A typical mortgage contract contains a clause that requires the borrower to buy and maintain an up-to-date homeowners insurance policy. If the borrower doesn’t do so, the bank can either purchase the coverage on the owner’s behalf and then bill the borrower for it — an expensive process that’s called “force-placing” a policy — or instead begin foreclosure proceedings.
Call your insurer and explain why you haven’t been able to make the payments. There’s a good chance that the company might be willing to restructure the policy, such as raising deductibles or eliminating unnecessary bells-and-whistles coverage, in order to lower the periodic bills to a level that you can afford. The bank might have some ideas, too.
Also call your state’s department of insurance. Regulators there may have more suggestions and can also explain your legal rights.
Many states also operate programs that offer basic property coverage, often at below-market rates, though some limit such programs only to those who can’t get coverage elsewhere.