SmartBuy uses an innovative model to clear a path to homeownership. If a buyer has at least 5 percent for a down payment, the state will provide up to 15 percent of the purchase price toward outstanding student loans. Any remaining balance must be paid in full by the closing date.
Say a buyer with $35,000 in student loans is interested in a $200,000 house. SmartBuy would cover $30,000 of that debt — an amount equal to 15 percent of the purchase price — leaving the buyer responsible for the remaining $5,000.
There are allowances for buyers with multiple student loans, said Michael White, a spokesman for the Maryland Department of Housing and Community Development. If the same buyer looking at the $200,000 house happened to have another education loan from a bank, the buyer could still be eligible for the program.
To qualify, buyers must be in good standing on their student loans and have at least $1,000 in debt. The purchase also must be financed through the Maryland Mortgage Program, which arranges home loans for first-time buyers in the state. Homeowners must remain in the house for at least five years to have the student debt forgiven.
Only homes owned by the state’s housing department are eligible. White said the department has nearly 20 move-in-ready homes for sale, ranging in price from $70,000 to $310,000 and scattered across the state. Several properties are located in Baltimore and Prince George’s County, areas that were hit hard by the housing crisis.
“We’re picking houses that with a little bit of improvement on our part can be move-in ready,” White said. “The other deciding factor is these houses are in communities that millennials would be interested in moving into.”
He anticipates the state can afford to help up to 50 homebuyers through the $10 million program, which is funded with proceeds from the state’s investment portfolio.
Maryland is among a small number of states trying to bolster homeownership for recent college graduates. Ohio offers down payment assistance and lower mortgage rates for first-time homebuyers who earned a degree within the past four years; Rhode Island provides up to $7,000 to buyers who graduated in the past three years.
“In concept, this is similar to a municipality or state providing a company with tax breaks for relocating to an opportunity zone,” said Mark Kantrowitz, publisher of Cappex.com, a college and scholarship search site. “The government knows that companies bring jobs that yield income tax revenue and newly relocated employees buy homes, appliances and housewares that yield sales tax revenue. Giving loan forgiveness is effectively rebating all or part of the recent college graduate’s income tax.”
Gov. Larry Hogan (R) championed the legislation that created SmartBuy and received resounding support from the Maryland General Assembly, which approved the bill earlier this year. The initiative pulls the state into a national conversation on the impact of student debt on homeownership.
While there are many economic factors impeding homeownership for millennials — including stagnant wages, rising home prices and conservative lending — the burden of student debt is a significant hurdle. A recent report by credit agency Fitch Ratings concluded that homebuyers with education loans generally can afford less than those without such debt.
Jasmine Townsel, 26, worried that the more than $30,000 in loans she carried from the University of Maryland College Park would limit housing options for her and her fiance, Brian Hawkins. When the pair set out on their house hunt in July, Townsel said she felt a little uneasy about how her student debt would affect the process.
“We had talked about what our budget would be, what kind of house we wanted” Townsel said. “And I was like ‘We can’t get a super expensive house because I still have to pay $200 to $300 a month toward my student loans’.”
Browsing Realtor.com, the couple came across a three-bedroom, 1,600-square-foot townhouse in Bel Air, Md. Neither had heard of SmartBuy when their realtor explained that the house qualified for the student debt forgiveness program. Townsel and Hawkins applied, purchased the townhouse for $205,000 and became the first homeowners in SmartBuy this fall. The couple, who started dating in high school, plan to get married in March 2018.
“It’s been really exciting to make the house our own,” Townsel said. “We just had our housewarming and are planning to put up a fence. Really, we’re just going to enjoy having our own place.”
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