[REN #369] Lender Pays Off Student Loan Debt

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picture of signing papers for Real Estate News for Investors Podcast Episode #369

Homebuilder Lennar is hoping to jumpstart the housing market with a new program for Millennials who are saddled with student debt. The mortgage arm of the company is offering to “pay” down that debt, as part of a new home purchase.

Eagle Home Mortgage is a subsidiary of Lennar, and announced that it’s launching this new program for people who can’t buy a home because they owe too much on their student loans. The program attempts to eliminate or at least “pay down” some of that debt, within certain parameters.

Borrowers must be buying a home from Lennar, to start with. They can then get up to 3% of the purchase price of the home to pay down student loans. The maximum home loan amount is $424,000 and the maximum amount provided to pay student debt is $13,000.

Eagle Home Mortgage President, Jimmy Timmons, said, “Americans are more burdened than ever by student loans, with $1.3 trillion in outstanding student loans spread out among 42 million borrowers.” He said this is particularly true of millennials. He said, “Our program is designed to relieve some of that burden and remove that barrier to owning a home.”

Student Loan Debt

NAR published a study recently on student debt saying the total outstanding amount is $1.4 trillion dollars. That’s 10% of all outstanding debt, and 35% of non-housing debt.

NAR’s “Profile of Home Buyers and Sellers” found that student loan debt impacts several major life choices including the ability to start a family, continue with their education, and buy a home. According to the study, 83% of those who participated say that student loan debt is keeping them from buying a home because they can’t save for a down payment. Among homeowners with student debt, 28% say they can’t sell their current home and buy a new one because of the financial burden of their student loans.

And the delay in a home purchase is substantial. For non-homeowners, it’s 7 years. If they already have a home, it’s about 3 years. The typical student debt is about $25,000, or what you might need to raise for a down payment on a home.

Slow Home Sales

The student debt problem isn’t the only reason millennials cannot pull the trigger on a home purchase, but it’s a big one. They are at the forefront of what’s supposed to be the next wave of home buyers, but student debt is putting a big dent in that idea.

In August, pending home sales decreased for the fifth time in six months. Hurricanes Harvey and Irma contributed to that the monthly slowdown, but existing home sales have been down for months due to several factors including tight inventory and a lack of starter homes with starter home prices.

NAR Chief Economist Lawrence Yun said, “The ongoing rise in home prices is straining the budgets of some of these would-be buyers, and what is available for sale is moving off the market quickly because supply remains minimal in the lower and mid-price ranges.”

NAR says that 31% of the buyers in August were buying a home for the very first time. That’s down from 33% in July. It’s also the lowest percentage since a year ago. The annual share of first-time homebuyers “last year” was 35%, so there’s been a considerable drop among that group.

Mortgage Programs for Millennials

The Lennar program is different than Fannie Mae solutions introduced earlier this year. Fannie Mae made it easier for people with student debt to qualify for a loan by excluding non-mortgage obligations that are paid by someone. Those obligations include credit cards, auto loans, and student loans. It also allows lenders to accept student loan payment information as part of the qualification process. And, for people who already own a home and are struggling with student debt, Fannie Mae provides a cash-out refinance option so homeowners can refinance at a lower rate, and get money to pay off those loans.

Lennar and Eagle Home Mortgage are trying something completely different. They offer to get rid of the debt for the borrower, and are promising that the contribution will not increase the price of the home or add to the mortgage balance. The program is being offered on a trial basis.

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