As a former second grade teacher in Watsonville, one of my goals in Real Estate has always been to help teachers buy homes. One of the upsides of the drop in home prices has been that I have been able to help more teachers and other local buyers purchase their first home. Along with the reduction in prices there has also been an extreme tightening of lending guidelines, which has made it difficult to qualify for a loan. To get conventional financing buyers now need 20% down. However, there are several programs that can help teachers and other first time buyers. Here are some examples with brief descriptions. If you would like more information or have specific questions about any of these programs, please let me know.
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CALSTRS- This is a program which works with the California State Teacher Retirement System (CALSTRS) to provide fixed rate loans with 3% down. The buyer gets two loans. One for 80% of the value of the home, and another for 17% of the value of the home. Both of the loans are fixed rates for the life of the loan. In addition, the second loan of 17% has no payments due for the first 5 years of the loan. Many refer to this as a "silent second". This gives buyers 5 years to get used making mortgage payments while getting ready for a higher payment in five years. The increased payment is defined from day one, so there are no surprises. The interest rate is fixed at today's competitive and historically low rates.
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FHA- These are government insured loans through the Federal Housing Administration. You do not need to be a teacher or first time buyer to qualify. The main advantages are the low down payment (3.5%) and looser credit restrictions. However, they do collect quite a bit of prepaid interest, insurance, taxes and there is often a high onetime fee, which all makes closing costs high relative to the size of the loan. There is also mortgage insurance required for these loans, which adds to the monthly expense. I will often negotiate the deal so that the seller is paying the majority of the closings costs since many buyers need their savings for the down payment as well as reserves funds and extra money for any repairs or improvements that the property needs.
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CALHFA- The California Housing Finance Agency is also offering the CAL-30 loan. This loan only requires 5% down, and is also a 30 year amortized, fixed loan. I recently received a bulletin saying that through monies from the Federal Government and approval from Governor Schwarzenegger there should be funds available for first time buyers. I had stopped recommending this program awhile ago because they had run out of funds to loan money. It appears that they will be funded again, and I am having a local lender look into the pros and cons of the loan with today's underwriting standards.
If you have any questions or know anyone interested in more information on fixed rate loans with low down payments, please let me know.
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