Illinois launched a new assistance program in December to help pay off student loan debt for its homebuyers, a program which is now attracting even out of state borrowers. 

The SmartBuy program, offered by the Illinois Housing Development Authority to help pay off student loans and encourage homeownership, has drawn interest from other out-of-state buyers too, IHDA Executive Director Kristin Faust told the Chicago Tribune.

The SmartBuy program offers two types of assistance to Illinois homebuyers: up to $5,000 that can be applied toward a down payment or closing costs and a payment toward student loans of 15 percent of the price of the home up to $40,000. 

In order to use the SmartBuy program, homeowners must meet the following eligibility standards: 

  • Have at least $1,000 in student loans
  • Have a FICO “mid-score” (of the three bureaus, the score that is not the highest or lowest) must be 640 or higher
  • The borrowers income and purchase price of their property must fall within the income and purchase price limits for the county the property is located in
  • It must be used when buying a new primary residence. The assistance cannot be applied retroactively if a home has already been bought.

The 15 percent payment toward the student loan must completely pay off the loan. If it doesn’t, the borrower can bring extra money to the closing table to pay off the student debt. The student debt of at least one of the borrowers must be completely paid off before closing on the loan. 

Conversely, if the 15 percent covers more than the total amount for one borrower, the funds may be used to pay for the student loans for more than one borrower on the loan, if they can pay off the entire loan.

“Either the borrower or co-borrower (not both) can elect to leave their loans unpaid, but if they do utilize any of the 15 percent assistance, it’s ‘all-or-nothing,’” IHDA explained of its SmartBuy program. “This means if some of your loans are being paid through SmartBuy assistance then every student loan must be paid off, using the assistance money or in combination with the extra money you bring to closing.”

Borrowers can see a list of lenders using the SmartBuy program, here.

Currently the SmartBuy program works with 165 lenders across the state of Illinois. Requirements to become an IHDA lender include: 

  • Licensed to do business in Illinois
  • In good standing with their primary regulators
  • Direct originators (brokers are not permitted)
  • Able to close and fund the loan in the lender’s own name
  • Approved with U.S. Bank Home Mortgage

There is no charge to become an IHDA Mortgage lender and IHDA does not review home purchase loans until after closing.

A study by the University of Chicago showed that a $1,000 increase in student loan debt lowers the homeownership rate by about 1.8 percentage points for public four-year college-goers during their mid-20s, equivalent to an average delay of about four months in attaining homeownership.

And a study from the Federal Reserve shows that for every 10 percent in student loan debt a person holds, their chance of home ownership drops one to two percentage points during their first five years after school.

Today, more than two-thirds of college graduates have student debt, compared with less than 50 percent in the early 1990s. Another major difference: the average balance increased from $9,000 to about $30,000.

Email Kelsey Ramírez

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