SANTA CRUZ (March 20, 2010) - Although this STRS (State Teachers Retirement System) home loan program has been around for sometime it is well worth another look. It should be noted that this program is not just for teachers in the California public school system. It is also for any employee of a community college, a CalSTRS employee or even an inactive CalSTRS member who may still have funds in the CalSTRS retirement system.

This program allows a qualifying borrower to buy a home priced up to $670,103 with just 3 percent down without requiring mortgage insurance! To top it off, this STRS loan provides a 30 year fixed rate first mortgage for 80 percent of the sales price and a silent second mortgage for up to 17 percent of the sales price. This silent second is provided by CalSTRS and requires no payments for the first five years. It accrues interest at the same rate as the first mortgage and must be paid back starting in year six. After five years passes, the payments on the second mortgage will be amortized over the remaining 25 years and must be paid back within 30 years of the home purchase.

Buying a home with just 3 to 4 percent down is not possible with conventional financing and there are substantial savings when comparing this loan with the FHA loan. As was just mentioned in this column last week, the popular FHA loans require 3.5 percent down and mortgage insurance. Mortgage insurance will add as much as $350 per month at a purchase price of $670,103 with 3.5 percent down. In other words, the STRS loan will save the borrower $350 per month in just mortgage insurance. Add that to the fact that there are no payments (first five years) on the 17 percent second mortgage, and the borrower will realize another $629 savings per month. All together, when compared with an FHA loan the borrower who buys a home with a STRS loan will be $979 ahead in the cash flow department. This savings will translate into more purchasing power because we will not have to count any payments on the second mortgage when determining the maximum sales price a borrower will qualify for.

Some of the other details of the program allow the borrower to receive a gift for the down payment. The borrower must come up with at least 1 percent of the sales price; the balance may be a gift. The seller may contribute up to 3 percent of the sales price to help the buyer with closing costs. There are no income restrictions or first time homebuyer requirements but the borrower may not currently own any other properties.

If you qualify as an employee or retiree and you are considering buying a home, be sure to check out your options with a mortgage professional at one of the direct lenders that provide this CalSTRS loan program.

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This column is written every Saturday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.