Student loan debt can be a major barrier for those looking to buy their first home. A new state program is aiming to help make homeownership more attainable for those burdened by the outstanding financial obligation.
The Connecticut Housing Finance Authority (CHFA) is launching the Smart Rate program, which will reduce CHFA-issued mortgage interest rates by about 1%. The typical CHFA mortgage is around 6.5%.
Authority Chief Executive Officer Nandini Natarajan hopes the lower mortgage rate will enable people to buy homes in neighborhoods where they may not otherwise be able to afford property.
“We would like to see more lending and more first time homeownership in areas like Fairfield County or Litchfield County or Eastern Connecticut, where there are towns and areas where there is supply available, but it may be out of reach at the moment,” Natarajan said.
The authority estimates every $1,000 in student loan debt delays the purchase of a home by four months for people in their 20s.
The program’s goal is to increase the affordability of homeownership, the main source of generational wealth, Natarajan said.
“The gap in the wealth of households that are black or brown and those who are not is significant. I think it's like 10 to one,” Natarajan said. “Homeownership is still the primary way that households accumulate wealth and pass on wealth.”
In the last five years, 40% of CHFA borrowers have had student loan debt with an average unpaid balance of $35,000, Natarajan said. The monthly payments range from $205 to $277.
“This particular mechanism, which is a reduction in the first mortgage interest rate, would reduce the monthly payment on a first mortgage by about $250 a month,” Natarajan said. “That would enable more borrowers to use those savings to cover their student loan payments.”
Eligible residents must have unpaid student loan debt of at least $15,000 at the time of CHFA loan approval and be in good standing with the student loan provider. The loan may be in deferment or in repayment.
The borrower must be a first-time homebuyer purchasing their primary residence in the state of Connecticut and must meet all other criteria of CHFA’s Mortgage Programs.
Smart Rate is funded with about $10 million in CHFA dollars, and will be able to provide lower-rate mortgages for about 400 families, Natarajan said.
Smart Rate will begin accepting applications on July 29.
“Buying a home for the first time is a major life milestone and our administration has made it a priority to help first-time homebuyers with the financial resources they need to achieve this goal,” Gov. Ned Lamont said.
