Posted in Industry News
Removing Student Debt Obstacles to Home Ownership
About 42 million Americans are carrying student loan debt, which collectively has crossed the $1 trillion mark. The average loan balance is more than $26,000, which makes it difficult to save for a new home. A recent survey co-sponsored by the National Association of Realtors found that 83% of recent college grads cite student loan debt as the number one reason for delaying a home purchase.
While the national market share of first time homebuyers is on the rise, student loan debt could threaten to stall this growth. Fortunately, some state and federal organizations – plus the nation’s second largest homebuilder – are starting to provide relief for would-be homebuyers still paying for their diplomas.
- Mortgage investor Fannie Mae has lowered the costs of “cash out” refinancing for the estimated 8.5 million current homeowners who are still carrying student debt. The only stipulation is that the cash pulled out of home equity must be used to retire college debt. This applies not just to students but to their parents, who may have co-signed for their kids’ student loans.
- The Maryland Department of Housing and Community Development has introduced a SmartBuy mortgage program where the state of Maryland buys foreclosed homes and makes them available to first-time buyers saddled with college debt. The program earmarks up to 15% of the purchase price to help pay off student loans.
- Florida-based Lennar Corporation’s Eagle Home Mortgage unit recently announced a home financing program that helps pay off the borrower’s student loan debt – up to $13,000 depending on the home price. The program directs up to 3% of a new Lennar home’s purchase price to pay down the borrower’s student loan balance. Lennar contributes the money, and it doesn’t add a dime to the home price or mortgage balance.
These innovative programs are helping ensure that paying for college doesn’t discourage people from pursuing the other half of the American Dream: home ownership.
Knowing the severity of student loan debt in the U.S., builders may also want to explore more budget friendly home designs, especially in cities with higher college debt-to-income ratios. Or consider taking a page from Lennar Homes by partnering with lenders who incorporate student debt financing plans into the mortgage negotiations.
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