16-Oct-17 – Seven of every ten young, first-time home shoppers believe their student loan debt has delayed them from attaining the American Dream – homeownership, the National Association of Realtors reports.

College loan debt is holding Millennials back from the homeownership threshold by up to seven years, according to a recent study by NAR and the nonprofit American Student Assistance. The study showed that only 20 percent of Millennials surveyed own a home, while most of them carry an average student debt of $41,200. The debt is more than their average annual income of $38,800.

However, forces are at work nationwide to help make the dream of homeownership more achievable for young, first-time buyers with a heavy load of student loan debt.

Chicago-based Countryside Bank is rolling out a new program targeted to first-time home buyers who need help saving for a down payment. The bank’s new First-time Buyers Savings Plan includes an option for a high-yield savings account which offers a hefty annual yield of five percent interest with no hidden fees.

“We truly are committed to putting our customers on the fast track to reach their goals, including homeownership,” said John Wheeler (left), CEO of Countryside Bank.

Lennar Corporation, one of the nation’s largest home builders, recently launched a home loan program that contributes up to three percent of its new home price toward student loans without raising the price or increasing the mortgage balance. Its subsidiary, Eagle Home Mortgage, will pay off up to $13,000 of outstanding student loan debt, depending on sales price of the home purchased. Lennar currently is not building homes in Illinois.

“Americans are more burdened than ever by student loans, with $1.3 trillion in outstanding student loans spread out among 42 million borrowers,” said Jimmy Timmons (right), president of Eagle Home Mortgage. “Millennial buyers are...feeling they can’t move forward. This program relieves some of that burden.”

With Lennar’s Student Loan Debt Mortgage Program, buyers must meet credit and income requirements and can qualify for loans with down payments as low as three percent.

Fannie Mae recently updated its Selling Guide to help Millennial home owners refinance their mortgage to help pay off existing student debt. The change allows loan originators who sell mortgages to Fannie Mae to offer a new refinance option for retiring debt. Proceeds from the refinancing will go directly to the student loan servicer to fully pay off at least one loan.

The policy change will likely have the effect of greater availability and lower interest rates for homeowners refinancing their mortgage to pay off student debt. Fannie Mae’s announcement expands upon a program launched last year with Social Finance, Inc., known on the web as SoFi, to offer a similar product.

Refinancing not without peril

Trading student debt for mortgage debt can free up cash in your family budget but it can also increase the risk of foreclosure when you run into trouble, according to Rohit Chopra, Senior Fellow at Consumer Federation of America and former Assistant Director of Consumer Financial Protection Bureau.

“For borrowers with solid income and stable employment, refinancing can help reduce the burden of student debt,” said Chopra (left), “but for others, they might be signing away their student loan benefits when times get tough.”

Homeowners who tap home equity to pay off student debt give up their rights to income-driven repayment options on their federal student loans, which cap federal student loan payments at roughly ten percent of their income.

Income-driven repayment is a critical safeguard during periods of unemployment or other income shocks that help avoid the consequences of default. Homeowners may also be trading away loan forgiveness options available to teachers and others who work in public service.

Borrowers should also consider the tax implications of refinancing student debt. Borrowers who itemize their deductions and whose income is too high to qualify for the student loan interest deduction may be able to take advantage of tax benefits through the mortgage interest deduction when using mortgage credit to pay off student debt.

“For too many borrowers, student debt feels like a big barrier to the dream of homeownership. While these changes won’t change those feelings overnight, they may help the mortgage industry adapt to the financial realities of today’s aspiring homeowner,” Chopra said.