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CalSTRS Home Loan Program - Frequently Asked Questions
What is the CalSTRS Home Loan Program?
The CalSTRS Home Loan Program consists of agreements with lenders who provide 30-year and 15-year fixed-rate loans for the purchase and refinance of single and various multi-family dwellings. These loans are purchased by CalSTRS. Countrywide Home Loans, who serves as the program administrator, will be the servicer for all CalSTRS loans that are reserved on or after July 26, 2004.
What are the programs and how much can I borrow?
- Conventional 15 or 30 year Fixed Rate Program - Competitive rates are available for buying a new home or refinancing to meet your individual needs. Mortgage loan amounts are available up to $834,000.
- 80/17 Program - Qualifying for a larger home mortgage is now available because of the low payment during the 5-year second mortgage deferral period. Mortgage loan amounts are available up to $650,000.
- Reverse Mortgages - Reverse mortgages can be a great way for homeowners who are 62 years of age or older to access equity in their homes. There are no income or health requirements and no monthly mortgage payments. Loan proceeds can be used however you wish and may be received as a lump sum, as a monthly payment or as a line of credit. The Home Equity Conversion Mortgage (HECM) and SimpleEquitySM programs are available to meet the individual needs of homeowners with varying home values.
Are there any restrictions on the CalSTRS home loan?
Yes. Some of the restrictions are:
- The home must the member's primary residence.
- The home must be located in California.
Am I required to carry Mortgage Insurance (MI) with a CalSTRS home loan? Can't I decline MI insurance, or take out a term life insurance policy in lieu of MI?
The lender requires MI protection unless your down payment is 20 percent of the loan value or greater. The MI protection has nothing to do with your health, life or death. MI reimburses the lender, while a mortgage life insurance policy is designed to protect the survivor by furnishing cash to pay off the loan should you or your spouse die. While you do have a choice with a life insurance policy, it will not absolve you of the requirements of MI insurance, particularly if you are participating in the CalSTRS Home Loan Program.
My loan has a CalSTRS deferred second. How does that work?
The CalSTRS Down Payment Assistance Program has two Notes and two Deeds of Trust. The second Note is deferred for a five year period. During this five year period, no payment is required on the second loan. At the beginning of the sixth year, payment on the second loan and the accrued interest will begin to amortize and payments will begin until the loan is paid in full.
Do I have to pay back my second loan?
Yes: Under CalSTRS Down Payment Assistant Programs, you will sign two Promissory Notes and two Deeds of Trust. Both loans will be secured by a recorded lien on the property. If you pay off the first by selling the property, refinancing the first mortgage, or at maturity of the first mortgage, or transfer title to the property, both loans become due and payable. These loans are not forgivable, nor do they go away after a period of time.
The CalSTRS deferred second loan must be paid off when the first mortgage loan is refinanced.
The CalSTRS second loan must be paid off when the first is refinanced.
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What are closing costs?
Once a loan has been approved, the borrower is asked to go to settlement (or "escrow") to sign final papers and the loan process is then finished. There are certain closing costs (other than points) involved in closing a real estate transaction, which can amount to anything from 1.5% to 3.5% of your mortgage loan. For example, if your mortgage loan is $85,000, your closing costs could range from $850 to $2,550. These closing costs will be in addition to your down payment on the house. The lender will charge a fee, which is called the Origination Fee, to cover the administrative cost of processing your loan. This is usually a small percentage of the loan amount. Many loan types require you to deposit in advance for some items that will be due after closing. These pre-paid items usually include real estate taxes and first year insurance premiums for hazard and mortgage insurance. These fees are called Paid in Advance items or Prepaid Escrows. It is necessary for a title insurer to examine a title to make sure there are no problems that would prevent you from having a CLEAR legal title. It is then necessary to get title insurance in case someone else should try to claim title to your property. Fees for title examination and title insurance are included in the closing costs and are called Title Charges. A record of your home purchase will be placed on file with your local government. There is a small fee to cover the cost of paperwork. These charges by the local government are called Recording and Transfer Charges. The settlement or escrow fee covers the cost of a closing officer to prepare and review all of the documents needed to close your escrow. We can provide you with a "Good Faith Estimate" of what your closing costs will be.
How does the 80/17 Program differ from the other CalSTRS Home Loan Programs?
Mortgage Loans made under this program are similar to those of the Zero-Down (95/5) Preferred Program with the following exceptions:
The maximum loan-to-value ratio will be up to 97% for purchases and refinances.
A 3% down payment is required.
A minimum of 1% must come from the borrower's own funds. The remainder may come from a gift from a relative where repayment is not required or a grant from a government agency or an employer - assisted housing program, which has been approved by Countrywide.
Interest Rate - The interest on the second mortgage is deferred simple interest for the first five years of the loan.
Closing Costs - The closing costs and prepays can be paid from following sources:
- Borrower's own funds.
- Seller contributions up to 3%.
- Gift from relative.
- Unsecured grant from a government agency or an employer - assisted housing program, which has been approved by Countrywide.
The borrower (after closing) must have available cash reserves that equal at least two monthly mortgage payments. Funds from individual retirement accounts (IRA/Keogh accounts) and tax-favored retirement accounts (401k accounts) may be considered as cash reserves.
Secondary financing for the down payment will come in the form of a deferred second loan. In other words, the borrower will sign two notes: one for the first mortgage of 80% and another note for 17%. The 17% is deferred because the loan payment can be deferred for the first five years of the loan.
How does the deferred second work?
The borrower does not have to repay on the second note for the first five years of the loan. However, the second note will have accruing interest that will be added to the principal balance at the end of the five-year deferred period. The new second mortgage loan balance will then be amortized with regular monthly, principal and interest payments due.
Under both programs, the interest rate on the second mortgage loan is the same rate as the first mortgage. If the home is refinanced or sold at a later date, the second note must be paid in full.
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What documents are needed to process my loan?
Certain documentation will be required to support your application. Generally, the higher your down payment, the less documentation will be needed. These may include credit reports, the loan application, an appraisal of the property, income verification, asset verification and various other documents depending on the complexity of your personal financing situation.
What counts in the loan application process?
Your Income - The amount of income you make will determine the amount of money you can borrow to purchase your home. For example, if a person makes $5,000 a month and spends $1,600 on a mortgage loan, including property taxes, mortgage insurance and hazard insurance, the housing expense ratio is 32% (1,600 divided by 5,000). Normally, 33% of your income is the general rule to be spent on your mortgage, but this can vary depending upon the amount of down payment (or equity for a refinance loan), your credit history, etc.
Your Debt - Mortgage companies and banks will look at your monthly debts such as loans, charge cards, child support, etc. made monthly by you. The percentage of debts to income is known as the debt-to-income ratio. A good goal is to spend about 38% of your income on all debts, including the contemplated new mortgage payment.
Your Employment History - Mortgage lenders or banks are more likely to lend money on more favorable terms to people who have worked several years at the same job or the same type of job. A verification of employment document may be requested to verify your work history.
Your Credit History - Each borrower has a credit history that is on file with many different Credit Reporting Agencies. The credit report is used to determine your ability and willingness to pay your debts as a borrower. If you have been late on your various payment obligations, the late payment will show up on a credit report. Each person's credit history is unique, but generally the better the credit history, the better the loan terms.
Property Value - The mortgage company or bank will want to know the value of the prospective home. The loan amount approved will depend on the value of the property to be determined by a certified and licensed real estate appraiser. This is to ensure that the asset is worth the money that you will borrow.
What does it mean to have 0, 1, or 2 points?
A point is one percentage of the loan amount. The lenders offer rates that may be lower, but require paying points. A rate of 7.875% with 1 point for a loan of $100,000 would require the borrower to pay a total of $1,000 to the lender upon closing of the loan. A rate of 8.000% with 0 points will require no payment to the lender, but the interest rate is slightly higher. Points will lower the interest rate and are of most benefit if you intend to keep the loan for a long time. Under the CalSTRS Program, the borrower will not pay discount points because buy-downs are not allowed.
Does CalSTRS offer a Mortgage program that would allow me to use a portion of my pension fund balance as a down payment?
CalSTRS does not offer a mortgage program that involves the usage of any portion of your CalSTRS pension funds. Instead, we offer the 80/17 down payment assistance programs, which do not put any portion of your retirement funds at risk.
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