Student loan forgiveness could make the path to homeownership more obtainable
BRYAN/COLLEGE STATION, Texas (KBTX) -Studies have shown that student loans have contributed to a decline in homeownership for young adults. Similar studies show that About 60% of non-homeowning millennials said student loan debt is delaying them from purchasing a home.
With over 40 million people now eligible for some type of loan forgiveness under President Biden’s student loan forgiveness program, some experts think homeownership will be more obtainable for some.
People who make less than $125,000 are eligible for $20,000 in forgiveness if they went to college with Pell grants. If they did not go to college with Pell grants, borrowers at that income level can receive $10,000 in student loan forgiveness.
Chuck Howard is an assistant professor of marketing at Texas A&M’s Mays Business School. He says if you’re looking to purchase a home, erasing $10,000 to $20,000 of student loan debt can be a game changer but it’s not guaranteed. Howard says the impact if any will depend on the borrower.
“The debt forgiveness should have a positive impact on people’s credit scores,” said Howard. “As long as they’re taking the money that they would have otherwise paid toward the debt and put it in a savings account so that they have that money to draw on when it comes time to make a major purchase like buying a home.”
Bryan-College Station realtor Wendy Flynn says the buyer’s debt to income ratio will also factor in their ability to qualify to purchase a home.
“If they are able to erase that student debt that will reduce their debt to income ratio and therefore those who are almost qualified will become qualified with the forgiveness,” Flynn said.
The downpayment for a home or lack thereof could also be an issue. Buyers with a downpayment of less than 20% must pay private mortgage insurance until they reach 20% equity. According to the Consumer Financial Protection Bureau private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan. Flynn says 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 towards their house payments and reach that 20 percent equity position sooner,” said Flynn.
Experts stress that loan forgiveness alone still may not make it possible for more people to qualify for home loans, especially as home prices and mortgage rates continue to soar.
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