Primary residence to rental property minimizing gross income

18 Replies

Hi everyone,

I plan to rent my house which has been my primary residence for 5 years, and move in with my fiancé .

I am a single mother with 15 year old twin daughters. I don't have any savings.

Of course, I worry about college costs in 3 years when my girls finish high school. My fiancé and I are not marrying now because he has good income and I will not get any college financial aid if I marry him. He is a widower and has his own two sons in college, so I wouldn't want to use his money for my children's college education

I have some unclear financial matters with this rental plan and need some advice.

1. The best option for me, in terms of getting generous private college financial aid, not to have any home equity at all. I could transfer deed and title to my fiancé but I have a $240,000 mortgage on the house, which is not transferable.
I know it's not a good idea because the mortgage company can find out about it. Besides, for college aid, it may look strange that I pay mortgage but don't own the house.

My fiancé could also buy the house from me, but he doesn't have enough money for a 20% down payment. He just bought his primary residence where we will live together.

2. Another option for me is to remain the owner of the house and rent it.
First, it will decrease private college financial aid because of the home equity. Second, it will increase my gross income and my ex-husband can request to have child support recalculated, according to our divorce agreement. I don't want that either.

3. My friend suggested opening LLC for renting my house. She says this way I can regulate my gross income increase myself at the level that does not cause child support recalculation.
I assume, this LLC option will require including LLC name on the house title, and refinancing the house.

I am very new to all this and pretty nervous because I don't know what to do.
I will appreciate any professional advice on my situation.

Hi Dick,

My house is in a very good location and will rent easily. We would get $1000 profit each month. Besides, real estate prices go up pretty well each year in our part of the town.

I could sell it now for $420K, my mortgage is $240K. 

do you really want to be a land lord?  do you think you will ever move back into the house?  If you are not truley on board to being in this business you wil be truely dishartened when you see what people can and will do to your once beuatiful home.  no matter how well you screen or what price point you are in they will not care for your home the way you did.

I would truley weigh you future life goals and the pros and cons

Originally posted by @Kate Gofman :

Hi everyone,

My fiancé could also buy the house from me, but he doesn't have enough money for a 20% down payment. He just bought his primary residence where we will live together.

 You could structure this as a refinance; no down payment needed if there's equity in it.

Originally posted by @Kate Gofman :

Hi Chris,

Thanks for your response. Which option is your suggestion to refinance for?

 The one where your fiance "buys" the home. Purchase mortgages need down payments. Refinance mortgages do not.

Hi Kate, 

(Not Legal Advice) IMHO.... It looks like you only have a few options over there. Based on your situation refinancing is a great option. I also wouldn't recommend putting it in your fiance's name either. But, if you want to rent your home you might want to consider going with a LLC. Check out this article.....

I hate to be a debbie downer, but you appear to be bringing 250k equity into the marriage. Do not transfer title to someone you are not married to. Let me rephrase. Do NOT give your house to anyone. Do not let your child ‘s college cost affect your retirement do not know what the future holds. Do what is best for you. Rent your house, keep it as a separate entity from the marital pool of assets and share the rental profits with your intended. Or if you want to sell your house and apply the equity to your husbands house with you on the title with 250k of the equity (a lawyer can draw it keep it separate). Or sell and bank the money. Keep it separate. (If your intended has a problem with that, have a problem with him having a problem with that. He will have all your earnings going forward together. Women need financial security.) Have your child Apply for financial aid and if she is turned down have your child take out loans and use the rental income to pay her living expenses. Do what is best FOR YOU. You do not have the TIME your child has to save to retire.

Sitting on that much equity is a mistake. A bird in the hand scenario.  Renting the home is high risk, Tenants do damage, stop paying rent, skip out without paying and create all sorts f stressful situations for home owners. Do you really want to be operating a business.

I would sell and invest the money in a income fund of some type that could probably generate a 8 - 10% return without a problem.

Let your children get loans if necessary. They can take care of their own future with some assistance from you.  Do not touch any principal you invest.

Why are the college costs on you? Your girls will get a grant of some sort for having a single mother, and with good grades they should be able to get some sort of scholarship. Put some ownership on your kids, they can work a job during school to help pay for a majority of the remaining costs and take student loans out for the rest if they still need more. 

If you really want to help out, tell them getting good grades in High School and applying for grants and scholarships will be the easiest thing they'll do there entire lives, if they're not motivated enough to do that, maybe college isn't a good option for them now, or start with a Community College. Regardless, I wouldn't stress too much about it, just get your girls pointed in the right direction and see what happens. Rent your place out and use a HELOC if they end up needing financial help, pay the HELOC back with your rents. Good luck!

Have you verified that owning a home as a primary residence will lower your financial aid?  As far as I remember, this will not affect your eligibility when filling out FAFSA. If you sell a home at a profit, I would think THAT would need to be reported on FAFSA.