Get out of student debt and into a house

Student loan debt has been an obstacle to homeownership for many millennials, the generation that currently makes up the majority of first-time home buyers. But if you live in Illinois, the IHDA (Illinois Housing Development Authority) has a program to help you buy a home with down payment assistance and student debt relief. It’s called IHDA Smart Buy. And if you qualify, you can buy a home and get out from under your student debt at the same time.

According to the National Association of Realtors®, student loan debt accounts for 35% of non-housing debt in the United States. As the nation’s student debt continues to rise, homeownership has declined, especially among younger people. The IHDA wants to help turn this trend around with their Smart Buy Program.

The IHDA Smart Buy program is an excellent choice for anyone with at least $1000 in student debt. If you have a middle credit score (out of the three credit bureaus) of at least 640, you should be able to qualify for the program. The IHDA Smart Buy plan will apply 15% of your home’s purchase price up to $40,000 towards paying off your student debt. If you have a co-borrower and both debts can be paid with that amount, then both of you can be free from your student loans. If both can’t be paid, you can either opt to cover only one or bring the balance to closing to pay off both.

For example, say John wants to buy a house, but he has $25,000 in student loan debt. His credit score is still around 650, so he qualifies for the IHDA Smart Buy program. He finds a house he loves and uses the Smart Buy program to get his mortgage. The IHDA will then take 15% of the home’s purchase price and apply that towards his $25,000 in student debt. It’s a win-win!

If John is married to Jill and has student debt, then the debt relief can be applied to her debt. If the combined student debt of John and Jill together is more than the $40,000 limit, they can do one of two things – either eliminate one person’s debt alone or apply it to all the debt and bring the balance to cover the difference to the closing table.

In addition to the student debt relief part of this program, there’s an additional $5,000 of down payment assistance that you can use. That $5,000 will be a second mortgage with a 30-year term. But you can repay that amount at any time. If you sell your home, you will need to settle the second mortgage when you close. For a first-time homebuyer, down payment assistance could mean the difference between buying a new home or not.

In 2020, “12% of home buyers purchased a multi-generational home, to take care of aging parents, because of children over the age of 18 moving back home, and for cost-saving.” (NAR, 2020 Profile of Home Buyers and Sellers)

Parents changed their home-buying habits in 2020 in part to accommodate their millennial children straddled with student loan debt. These millennials are moving back home to save money and try to pay back their student loans. With the Smart Buy program, the IHDA hopes to fuel the market and get more people into their own homes. Helping younger people buy homes builds stronger communities and will boost the post-pandemic economy.

There are some restrictions to the program. Your income and the purchase price of the home you want to buy must be within the limitations set for the county in the home’s location. Also, the Smart Buy program is only applicable if it’s your primary residence. You can’t use it on a second home or investment property. If you’re buying your first home, make sure to get savvy on the restrictions in your county.

The best part about this program is if you keep your home for at least three years, you won’t have to pay back the student loan relief. You’ll feel comforted knowing you are free and clear from student debt and are building equity for your future.

Contact one of our trusted mortgage experts at Guaranteed Rate to learn more about this program.

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