With millions of Americans shackled by massive student loan debt, one home lender is trying to entice potential buyers by paying off a chunk of their student loans when they purchase a home.
According to news in The Wall Street Journal, Eagle Home Mortgage – a subsidiary of Lennar Corp. –introduced a program under which it will pay off a significant amount of the student loan of a borrower who purchases a home from Miami-based Lennar. Housing market experts predicted that other builders are likely to unveil similar programs to attract more first-time buyers.
Eagle will make a payment to a buyer’s student loans of as much as 3 percent of the purchase price, up to $13,000. The contribution will not directly increase the purchase price of the home or add to the balance of the loan.
“Obviously, there’s a benefit to bringing more people into the home buying market,” said Doug Cropsey, a senior vice president at Eagle. “We’re trying to design something here that supports affordability and creates that path to homeownership.”
Experts say that the program could help ease the psychological barriers that many student loan borrowers feel about buying a home and taking on more debt. In fact, a study by NeighborWorks America, a nonprofit that helps promote access to homeownership, found that one in four millennials have delayed buying a home because of student debt – and half of millennials said they worry about their student loans all or most of the time.
In addition, a report from the Federal Reserve Bank of New York earlier this year revealed that student loan defaults were at a high rate and that a small percentage of student debt holders couldn't purchase a home as a result.
Of course, a program like Eagle Home's can come with risks. Consumer advocates point to builder incentive programs during the last real estate boom that allowed sellers to pay a portion of the home buyers’ down payment, which then inflated home prices and drove up the amount that people could afford to pay for their homes.
While mortgage giant Fannie Mae has agreed to back the loans, it will closely monitor the program to ensure that the value of student loan payments isn’t included in home appraisals, which can potentially drive up values.
“This is not without risk,” said Jonathan Lawless, vice president of customer solutions at Fannie Mae. “Builders always want to provide more money and incentives for people to buy their homes. It has the potential to start distorting values.”