Does paying off your student loans while also buying a home sound too good to be true? Well, for first-time home buyers in Illinois with student loan debt, that could be a reality. Buying a home is a significant financial milestone, but for many, student loan debt poses a major hurdle. Recognizing this challenge, the Illinois Housing Development Authority (IHDA) offers the SmartBuy Loan, a program designed to help first-time homebuyers manage their student loan debt while securing a mortgage with minimal upfront costs.
How Student Loan Debt Affects Mortgage Applications
One of the most critical factors in a mortgage application is the Debt-to-Income Ratio (DTI), which measures a borrower’s total monthly debt payments against their gross monthly income. Lenders use DTI to assess a borrower’s ability to manage additional debt, and a high DTI can make mortgage approval more challenging. Student loan debt plays a significant role in this calculation, as monthly student loan payments are included in the debt portion of the DTI equation. Even if payments are deferred, lenders may still factor in a percentage of the total loan balance as an estimated payment. A lower DTI improves mortgage eligibility, so programs like IHDA SmartBuy, which helps reduce or eliminate student loan balances, can significantly enhance a borrower’s chances of qualifying for a home loan.
What Is the IHDA SmartBuy Loan?
The SmartBuy Loan is a unique mortgage assistance program that provides homebuyers with both student loan debt relief and down payment support. This initiative is a game-changer for those burdened by student loans, making homeownership more attainable.
Key Features of the SmartBuy Loan Program
- Student Loan Forgiveness – The program provides up to $40,000 or 15% of the home’s purchase price (whichever is lower) in student loan debt assistance. Student loans can be private or public and must be current. This amount is paid directly to the loan servicer, helping to significantly reduce or eliminate the borrower’s student debt. One borrower’s full remaining student loan balance must be paid off at loan closing.
- Down Payment and Closing Cost Assistance – Borrowers can receive $5,000 in assistance to help cover their down payment or closing costs, further reducing the financial burden of purchasing a home.
- 30-Year Fixed-Rate Mortgage – Homebuyers must use an IHDA 30-year fixed-rate mortgage to qualify for the SmartBuy program, ensuring stable and predictable monthly payments.
- Eligibility Requirements – To qualify, applicants must:
- Be first-time homebuyers or purchasing in a targeted area.
- Have at least $1,000 in student loan debt from an accredited institution.
- Have a credit score of at least 640.
- Have current student loans—not in default or delinquent status.
- Have loans with private or public lenders.
- Meet all applicable IHDA program guidelines and income and purchase price limits for the county where the property is located.
- Complete a homeownership education course before closing.
- Live in the home as their primary residence.
How to Apply
Applying for the SmartBuy Loan is a straightforward process:
- Work with an IHDA-Approved Lender – Homebuyers must apply through an IHDA-approved lender like Homestead Financial Mortgage.
- Submit Your Application – The lender will assess your eligibility and guide you through the mortgage process.
- Complete Homebuyer Education – A required homeownership education course must be completed before closing, either online or in person.
Success Stories
Many Illinois residents have already benefited from the SmartBuy Loan program. For instance, Sarah, a recent college graduate, was able to pay off her student loans and purchase her first home in Chicago. “The SmartBuy program made it possible for me to achieve my dream of homeownership without the overwhelming burden of student debt,” she shares.
Is SmartBuy Right for You?
If you have significant student loan debt and dream of homeownership in Illinois, the IHDA SmartBuy Loan could be the perfect solution. By reducing student loan balances and providing down payment assistance, this program opens doors for those who might otherwise struggle to qualify for a mortgage. You can also combine gift funds with an IHDA loan – meaning you can use money gifted to you, maybe in the form of graduation gifts, money from parents, etc., towards a downpayment in addition to the funds provided through this program. You can learn about what goes into a mortgage application and more in our homebuyers guide.
One thing to note: The IHDA SmartBuy program operates without a set schedule and remains open until its allocated funds are exhausted. The program is currently closed for 2025. The most recent application timeframe lasted from December 2024 through February 24, 2025. This gives you an idea of how small your window of opportunity can be. If you are interested, it’s essential to keep an eye out for when applications open next and be ready to apply right away.
Final Thoughts
The IHDA SmartBuy Loan is an incredible opportunity for aspiring homeowners burdened by student loans. By offering substantial financial assistance, the program makes homeownership more accessible and prepares buyers for long-term financial stability and growth.
For more information, visit the official IHDA Smart Buy website or contact an IHDA-approved lender like Homestead Financial Mortgage to see if you qualify.