Canceling student loans could make the path to homeownership more accessible
BRYAN/COLLEGE STATION, Texas (KBTX) – Studies have shown that student loans have contributed to the decline in homeownership among young adults. Similar studies show that around 60% of millennial non-homeowners said student loan debt put them off buying a home.
With more than 40 million people now eligible for some type of loan forgiveness under President Biden’s student loan forgiveness program, some experts believe homeownership will be more accessible for some.
People earning less than $125,000 qualify for a $20,000 rebate if they went to college on Pell grants. If they didn’t go to college on Pell grants, borrowers at this income level can receive $10,000 in student loan forgiveness.
Chuck Howard is an assistant professor of marketing at the Mays Business School at Texas A&M. He says if you’re looking to buy a house, erasing $10,000 to $20,000 in student loan debt can be a game-changer, but it’s not guaranteed. Howard says the impact, if any, will depend on the borrower.
“Debt cancellation should have a positive impact on people’s credit scores,” Howard said. “As long as they take the money they would otherwise have paid for the debt and put it in a savings account so they have that money to draw on when it comes time to make a big purchase like buying of a house.”
Bryan-College Station realtor Wendy Flynn says a buyer’s debt-to-income ratio will also factor into their ability to qualify to buy a home.
“If they’re able to clear that student debt, it will lower their debt-to-income ratio and so those who are nearly qualified will become qualified with the discount,” Flynn said.
The down payment for a house or lack thereof could also be an issue. Buyers with less than 20% down payment must pay for private mortgage insurance until they reach 20% equity. According to the Consumer Financial Protection Bureau, private mortgage insurance, also known as PMI, is a type of mortgage insurance you may be required to pay for if you have a conventional loan. Like other types of mortgage insurance, PMI protects the lender, not you, if you stop making payments on your loan. Flynn says the PMI impacts future buyers and those with existing mortgages.
“You’ll be able to remove the PMI, so for those who have their student loans removed, they may be able to pay more for their house payments and reach that 20% position sooner,” Flynn said.
Experts point out that loan forgiveness alone still does not allow more people to qualify for home loans, especially as house prices and mortgage rates continue to soar.
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