Maryland SmartBuy Program Will Pay Off Up to $40,000 in Student Loans If You Buy a House There.

The Maryland SmartBuy Program

Looking to buy a home with student loan debt? Consider moving to Maryland. A government initiative there will pay off and eventually forgive up to $40,000 in student loan debt. The catch: You have to buy a home in Maryland. And you have to live in it for at least five years.

The program works by paying off student debt as part of purchasing the home. Maryland SmartBuy involves the purchase of move-in-ready homes currently owned by, and available from, the state of Maryland.

The Baltimore skyline.

Maryland SmartBuy 2.0 gives homebuyers an opportunity to purchase any home in Maryland that meets Maryland Mortgage Program guidelines while paying off student debt.

According to reporting by Education Week, the Maryland SmartBuy program has paid off at least $7 million in student loans so far. There have been at least 216 homes purchased under the program, with $47 million in total mortgages issued.

Program Eligibility

To qualify for either Maryland SmartBuy program, homebuyers must have an existing student debt with a minimum balance of $1,000. Maryland SmartBuy financing provides up to 15% of the home purchase price for the borrower to pay off their outstanding student debt. Maryland SmartBuy 2.0 offers the same student debt relief of 15% of the home purchase price with a maximum payoff of $40,000.

The full student debt for at least one borrower must be completely paid off at the time of the home purchase, and homebuyers must meet all eligibility requirements for the Maryland Mortgage program. They can also only finance via selected lenders and they can only buy properties owned by the state and approved for purchase under the program. They can also only use lenders under the program.

The program debuted in 2016 and was so successful in its first year that the State of Maryland significantly expanded the number of houses available for Marylanders to purchase under the program.

“In Maryland, nearly 60 percent of all of our college students are graduating with thousands of dollars in student debt. This financial burden prevents many young Marylanders from achieving financial security and is a roadblock to homeownership and saving for retirement,” said Governor Larry Hogan in a statement. “Today, our administration is proud to celebrate a very successful inaugural year of Maryland SmartBuy 2.0, through which Maryland homebuyers have eliminated millions of dollars in student debt while settling down right here in our great state.”

To support Maryland SmartBuy 2.0, Governor Hogan provided $3 million for the program in his Fiscal Year 2019 budget. Due to demand, the Maryland Department of Housing and Community Development provided an additional $3 million in bridge funding through the Down Payment and Settlement Assistance Program, eliminating a total of $6 million in student debt, an average of $28,000 per participant. For Fiscal Year 2020, Governor Hogan has doubled the program’s original funding to $6 million.

The campus of Johns Hopkins University, Baltimore, Maryland.

How it Works

Buyers can finance up to 95% of the sales price of the home via a 30-year conventional amortizing mortgage loan. That means a down payment requirement of 5%. However, Up to $5,000 in down payment assistance is available. It comes in the form of a zero percent loan, third position lien on the property

Under the program, the buyer will also sign a second mortgage in the amount of up to 15% of the purchase price of the home. This amount must be enough to totally pay off the borrower’s outstanding student debt balance at the time of the purchase.

Then, to pay off student debt, the second mortgage is a five-year forgivable mortgage of up to 15% of the purchase price. This will go directly toward paying the borrower’s student loans in total – up to a cap of $40,000.

This second mortgage has no interest, and no payments due. It will be secured by a second lien on the property. Each year, 20 percent of the original 2nd mortgage balance will be forgiven. After five years have elapsed, the 2nd mortgage is forgiven. All you have to do is keep up with the mortgage payments and remain in the home as owner-occupant for five years.

Other criteria

The student debt must be in your name (not a family member’s name). It must have been taken out for education purposes. No other type of debt qualifies for this program.

Borrowers may utilize other funds but only if they come in the form of GRANTS from third parties. For example, employers, non-profits, counties, agencies, etc.

Photo credit: Adam Wyman, courtesy of

Why does this work?

It gets the student loan payment off the borrower’s monthly debt-to-income ratio. Because the 2nd mortgage is designed to pay off the debt completely, the payment also disappears completely. If the program allowed for partial payments, you would still have a full monthly payment. Just a smaller balance. But this would still count against your critical debt-to-income ratio – and make it tougher to get a mortgage. It also hurts your credit.

But under the Maryland SmartBuy program, the payment that was going to your student loan can go to the mortgage. You can, therefore, qualify for a bigger loan.

So the program may actually help make a Maryland home that much more affordable.


How do I qualify?

To qualify, you need to have all your student loans in good standing and have a minimum of $1,000 in student loan debt. You must be a first-time homebuyer. However, veterans may qualify for a waiver if they are using their exemption for the first time. You may also get a waiver if you buy in a target area.

Additional qualifications.

  • You need a middle credit score of 680. That is, the lender will take a report from each of the three credit bureaus – Equifax, TransUnion, and Experian. So two out of three will need to show a credit score of 680 or better.
  • Your total student debt must be greater than $1,000 and up to 15% of the home purchase price; outstanding balance (of all existing student loans for at least one borrower) must be paid off fully at closing.
  • All student loans must have a monthly statement or verification from the student loan lender/servicer (no personal loans) who initially made the loan. That is, your school, bank, credit union, or other banking institution, or the U.S. Department of Education

  • The loan must be in the name of the borrower for the borrower’s education (not borrower’s children, family, etc.)
  • The loan must be current; it may be in repayment or deferred status.

You can find a list of approved lenders here.

Also, if you are a first-time homebuyer (someone who has not owned a home in at least three years) you may qualify for the Maryland Mortgage Program. You need to meet certain income qualifications. These vary by location and the number of people in your household.  More details on the Maryland Mortgage Program are available here. 

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