February 20, 2019
How Ohio is Making Home Ownership Possible for People with Student Loans
College graduates with outstanding student loans tend to face a number of barriers to becoming homeowners—especially in today’s debt landscape, where total student loan debt currently ranges around 1.5 trillion dollars. For one thing, the ever-important debt-to-income ratio, which lenders typically utilize in determining a potential borrower’s mortgage-readiness, poses this set of potential buyers an obvious and not insignificant problem. As graduates pay down their student loans, they are unable to save money to put down on a home or even to be able to make potential monthly payments on a mortgage loan. Hard stop.
But some states have been joining Fannie Mae in taking measures to change this money trap for their debt-burdened college graduates—most recently among them Ohio, already in the assistance game since 2009, which in November further rose to the challenge.
It may be worth asking why a state should want to unburden its college graduates of these loans. The answer is simple: when college graduates don’t buy homes, they do not become invested in remaining in place. This makes them more likely to move—out of state. It’s a phenomenon that contributes to what is referred to as “brain drain,” where states like Ohio see their best and brightest moving to other areas (like our service area of Massachusetts) where they might earn enough to pay down their loans more quickly.
Ohio’s latest solution—based on the SmartBuy program initiated in Maryland in 2016, which provides a second, no-interest, no-payment mortgage (there up to 15 percent of the new home’s cost), so long as the borrower can put down 5 percent of the purchase price–requires that a buyer remain in the Ohio home purchased under the program for at least five years to truly reap the program’s full benefits. In exchange, the purchasers get:
- An amount of the new home’s cost forgiven at closing—up to 20 percent of that cost, in fact.
- No requirement to pay on their student loans as long as they keep their mortgage payments current.
Should the student’s debt exceed 20 percent of the home’s cost, though, they would still be responsible for paying that remaining portion of the loan at closing.
These programs, while not technically necessary in the Rhode Island, Florida, and Massachusetts markets where we at Topouzis & Associates, P.C. provide our services, are likely to have a long-term bolstering effect on the housing market as a whole.
Topouzis & Associates, P.C. is your bulwark against problems of the past. We do title searches and ensure you are gaining clear title to your property—and we back our services with offerings of title insurance (click here), in case someone along the line of ownership did something that will weaken your title at some point in the future.