Homeownership is a huge part of the American dream. Buying a house, raising a family in it, and building equity are seen as markers of your financial success and stability. However, the rising levels of student loan debt have made that dream more difficult to achieve.
According to a recent Student Loan Hero survey, 41 percent of respondents said they would buy a home if they no longer had student loans to worry about. Carrying a hefty loan balance and keeping up with monthly payments can make affording a mortgage impossible.
Now, one homebuilder is launching a program designed to help you buy a house if you have student loans. Lennar Homes — one of the nation’s biggest home developers — will give new buyers up to $13,000 to pay off their loans.
However, this opportunity isn’t right for everyone. Here’s what you need to know about the program and what one expert has to say about Lennar Homes.
How the program works
Lennar Homes recently announced it was partnering with Eagle Home Mortgage, a Lennar-owned full-service mortgage company, to help reduce one of the biggest barriers to homeownership: student loans.
To help people with college debt buy a Lennar-built home, Eagle Home Mortgage will pay up to 3 percent of the home’s purchase price (up to $13,000) to your loan servicer through its Student Loan Debt Mortgage Program.
“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, president of Eagle Home Mortgage, in a press release.
“Particularly with millennial buyers, people who want to buy a home of their own are not feeling as though they can move forward,” Timmons said. “Our program is designed to relieve some of that burden and remove that barrier to owning a home.”
Lennar Homes believes this program will make homeownership more achievable for recent graduates and young people interested in buying a house with student loans.
RJ Winberg, a real estate agent in California, believes the program might offer more benefits than just reducing student loan debt. Lennar Homes and Eagle Home Mortgage consider your finances along with the benefits of the incentive to determine your mortgage terms.
“While money to pay off student loans could be viewed as simply a cash incentive, the real advantage of a program like this is on the mortgage qualifying side,” said Winberg. “If the incentive paid off the student loan, you could underwrite a borrower as if the student loan payment didn’t exist, helping to ease the debt-to-income ratio.”
Your debt-to-income ratio is what many lenders look at when deciding whether to give you a home loan. A better debt-to-income ratio improves your chances of getting a mortgage in the first place.
Who is eligible for the program
Right now, Lennar is offering the program as a trial. To be eligible, you must meet the following criteria:
- You have qualifying student loans: Both federal and private student loans you borrowed to pay for college, university, trade school, community college, or a certificate program are eligible. Only loans you borrowed yourself qualify. The program is not intended for parents who took out loans to pay for their child’s education.
- You plan to buy a primary residence: A condo, townhome, or single-family home will qualify for the program as long as you plan to use it as your primary residence. You can’t use the program to buy a vacation home or investment property.
- You meet the credit score minimum: Your credit score must be 620 or higher.
- Your intended home costs less than the maximum: Only homes that cost $424,100 or less are eligible for the program.
- You completed a class: Lennar and Eagle Home Mortgage require homebuyers in this program to complete a class on homeownership and the homebuying process. The class has a $75 fee.
- You don’t live in certain states: Eagle Home Mortgage operates in most states, but the company doesn’t offer mortgages in Alaska, Arkansas, Hawaii, Louisiana, Nebraska, Ohio, Oklahoma, Vermont, and West Virginia.
When you’re buying a house with student loans, coming up with the down payment can be one of the most difficult parts. But you might not need a 20 percent down payment with this program. Through the Student Loan Debt Mortgage Program, you could buy a home with as little as 3 percent down.
To qualify for the program, you must contact an Eagle Home Mortgage loan officer to review your situation. You can start the process by submitting your information online.
Do your homework before signing up with Lennar Homes
Reviews for Lennar Homes are mostly positive. The company has an A-plus rating from the Better Business Bureau and over 101 positive reviews from real customers.
However, it’s a good idea to be cautious before enrolling in the Student Loan Debt Mortgage Program. Winberg stresses that you shouldn’t buy a Lennar Home just to get the student loan incentive. Nor should you buy a more expensive home just to get your loans paid off.
“With Lennar acting as the mortgage lender, I would want to make sure that the other terms of the mortgage are also competitive,” Winberg said.
“I think buyers should consider whether the home is really worth what they are paying for it,” he continued. “Ultimately, that 3 percent should be viewed as a cash incentive. If the deal still looks fair when looking at it that way, then it could definitely be a benefit.”
You should look at the home’s total price along with the cash incentive for your loans. If the house is priced fairly and you can afford the home, it could be a smart option. But if the house is over market value, then it might be wise to move on, even if it means losing the student loan incentive.
Shop around to make sure the program offers a good deal for you. Even if you have student loan debt, this program isn’t your only option if you want to buy a home.
“At face value, I can see how [the Student Loan Debt Mortgage Program] would help buyers who are on the edge of qualifying,” said Winberg. “On the other hand, I don’t know how these mortgages are priced, and I think that is a very important part of the puzzle. Also, I would hate to see a buyer purchase a home they don’t necessarily want just to get this incentive.”
You might be able to get a better deal and more house for your money by looking at homes from other builders or older homes. You should shop around for mortgage lenders too. You might find you can get a lower interest rate elsewhere, which could save you more than $13,000 on your mortgage repayment.
Buying a house with student loans
For people who would otherwise postpone buying a home while they paid off their debt, the Lennar Homes program might be a useful way to purchase a house while repaying student loans.
But before you apply for a mortgage with Lennar Homes or any other lender, make sure you know just how much house you can afford.