Family Economics

Purchasing a home can be difficult for people with significant student loan debt, but Gate City Bank has developed a program that consolidates that debt with a low interest rate in partnership with a mortgage loan

BY LISA GIBSON

Since Gate City Bank implemented BetterLife Student Loan in November, it has issued more than 170 loans for a total of over $4 million through the program, according to Kevin Hanson, Gate City’s executive vice president and director of lending in Fargo. “It’s been really good,” he says. “Probably the first response is, ‘What’s the catch?’ It seems too good to be true.”

The BetterLife Student Loan program makes it easier for people with student loan debt to qualify for affordable mortgage loans. Gate City will lend up to $50,000 to consolidate student loan debt at a 1 percent fixed interest rate for 10 years for homebuyers who borrow their mortgage loans through the bank. For many, that equates to a savings of $100 or $200 per month. That amount is just what some clients need to get over the hump of qualifying for a loan, Hanson says.

A Solution

Just like credit card and car payments, student loan payments are figured into a debt-to-income evaluation for anyone looking to qualify for a mortgage loan. Substantial student loan debt can mean potential homebuyers either can’t qualify for a loan at all, or can’t qualify for a large enough loan to pay for the home they want. “If you have a lot of student debt, it’s almost impossible (to qualify for a mortgage loan),” says John Colter, Grand Forks Area Association of Realtors executive.

“When you look on a national level, the amount of student loans has consistently gone up every year, so it is becoming a significant portion of their budget,” Hanson says. “It does have an impact on how much of a loan they can afford.”

Many student loan borrowers are saddled with high interest rates and a 30-year payback expectation, Hanson says. “You’re 25 years old, you’re going to be paying your student loans back until you’re 55? This program gives them that light at the end of the tunnel,” Hanson says. “Ten years with 1 percent interest makes an impact and then they feel more comfortable with the house payment.

“A lot of times, it was the individual saying, ‘You know I’d really like to buy a house.

I’m just not comfortable with the amount of student debt I have,’” Hanson says. So BetterLife Student Loan was developed as a solution. “We tried to look to say, ‘What can we do to make an impact?’”

Laura Gunderson and her boyfriend Justin Janke will close on their West Fargo, N.D., home at the end of September. BetterLife Student Loan lowered their student loan payments each month, allowing them to allocate more to their mortgage payment budget. “We were able to get the house that we wanted,” she says. “We had already been preapproved by a couple different lenders, but chose to go with Gate City because of this program.”

Kyrie Severson had a similar experience when she and her husband Jason bought a home in a rural community north of Fargo and moved in June 1. With student loan interest rates between 3 and 6 percent, the mortgage budget for their current starter home was tight. BetterLife Student Loan reduced Kyrie Severson’s student loan monthly payment by one-third, she says, allowing them to take on a bigger house payment and move themselves and their 18-month-old son, Riley, to a larger home. The program helped out tremendously with mortgage affordability, Severson says.

She would recommend the program to anyone with student loan debt looking to buy a home, saying she’s glad her family took the opportunity. “It was super simple and very, very helpful for us in buying this home,” she says.

Colter says he wouldn’t be surprised if other regional banks come up with similar options for clients to pay down student debt, as BetterLife Student Loan seems like a successful program that could definitely help more young people buy homes.

“We’re a community bank,” Hanson says. “We believe in investing in our employees and our communities and our customers, and we saw this as a program that really tried to achieve giving back to our customers and our communities. It’s really looking at young individuals that have made a commitment — they’re buying a house in one of our communities. We look at it as a win-win.” PB

Lisa Gibson Editor, Prairie Business 701.787.6753 lgibson@prairiebusinessmagazine.com