How Proposed Student Loan Rules Could Help You Buy First Home

0 Share Newsweek is a Trust Project member See more of our trusted coverage when you search. Prefer Newsweek on Google to see more of our trusted coverage when you search. A bill recently introduced in the House aims to tackle two of the biggest obstacles that younger Americans face when looking to buy a home: student loan debt and housing affordability.

Representative Jeff Crank, a Colorado Republican, introduced the First Time Homebuyer Debt Reduction Act in the House on August 13. The bill has been referred to the House Financial Services Committee, where it awaits further action.

If enacted, it would require government-backed lenders Fannie Mae and Freddie Mac to treat certain payments toward a homebuyer's federal student loans as a financial concession when they are purchasing a newly constructed home as their primary residence.

Newsweek has contacted Crank’s office for comment via email.

If the bill becomes law, builders, sellers or other interested parties in a home sale could contribute up to $25,000 toward a buyer's federal student loan debt and have that assistance classified as a financial concession rather than a sales concession. Any amount exceeding $25,000 would be treated as a sales concession.

The student loan payment would be treated similarly to other seller or builder incentives that help a buyer complete a home purchase.

In practical terms, a builder seeking to attract buyers could offer to pay off part of a buyer's federal student loan debt.

Reducing that debt could improve the buyer's debt-to-income ratio—an important factor when it comes to mortgage approval decisions. It could also lower monthly debt obligations, possibly allowing some borrowers to qualify for larger mortgages.

According to the bill text, it would apply only to purchases of newly constructed principal residences.

The legislation seeks to help younger Americans who are struggling to purchase a home while carrying student loan debt.

Student loan debt can be a significant burden for prospective homebuyers, while high house prices and mortgage rates have pushed home ownership further out of reach for some.

Experts caution that the bill may not provide as much new financial assistance as it initially appears.

Fenaba R. Addo, a professor of public policy at the University of North Carolina-Chapel Hill, whose work examines debt and wealth inequality, told Newsweek the bill is largely a clarification of existing concession rules rather than a direct financial benefit.

“This bill is more clarifying than beneficial for student debt borrowers given student debt can now be an explicit option that counts towards a seller's concessions, meaning any amount directed to student debt comes out of what would have gone towards closing costs,” Addo said.

“So while it may initially appear as a benefit for first-time home buyers looking to purchase a home, it is not really creating new money for borrowers, instead it is providing explicit clarification of how a seller’s concessions can be allocated.”

If enacted, Addo said specific groups of borrowers may benefit rather than all first-time home buyers with student debt.

“It’s not entirely clear that all first time homebuyers with student loans will benefit; rather, it may help borrowers on the margin, those with high interest student debt or borrowers who would under current circumstances be denied a mortgage loan due to their debt-to-income ratio,” she said.

“This bill is meant to incentivize builders, who can use this incentive without making any changes to the list price.”

For now, the bill faces a long path to becoming law.

It was referred to the House Financial Services Committee, the first step in the legislative process.

It would need committee approval, passage by both chambers of Congress and the president's signature before taking effect.

GovTrack, a nonpartisan congressional tracking website, currently estimates only about a two percent chance of enactment.

Contact Newsweek editor on this story: Edward Pearcey.

Indexed and credited by AIPROPX. Originating outlet: Newsweek. Open at source →