It's a constant challenge, coming up with ways to help first-time, low-to-moderate income homebuyers qualify for California's high-priced housing market. But it's a task that the California Housing Finance Agency takes very seriously.
"We looked at the market and there is so much interest-only, ARM (adjustable rate mortgage) product done, in California, because of the high cost of the housing prices, that we had to stay relevant. So we had to come up with a product that fits our borrowers -- we only get them once because we only do first-time homebuyers," says Ken Giebel, Director of Marketing for California Housing Finance Agency.
In an effort to get more people into homes, the agency rolled out a unique program targeting first-time homebuyers.
"It's an interest only PLUS program for the first five years, and then the remaining interest and all of the principal is amortized over 30 years, so it becomes a 30-year loan and the total loan is 35 years," says Giebel.
This type of loan program is so non-conventional that even some of the largest lenders aren't equipped to handle it.
A lot of the smaller lenders are able to do this while many of the larger lenders aren't, because their systems are not set up to handle a 35-year loan. "But First Mortgage Corp, National City Mortgage, Guild Mortgage, they're handling it and we've got almost 40 (loans) for this in two weeks," says Giebel.
The loan program is designed to help a first-time homebuyer qualify for perhaps a little more home. A homebuyer is qualified using the interest-only portion of the loan, then when the full payment goes into effect, an interest rate that was set at the beginning of the loan remains fixed for the remaining 30 years of the loan.
"The interest only PLUS enables more people to qualify for a home because you qualify on the interest-only portion. So for example, on a $300,000 house, of which there are few, under a 30-year fixed loan you would need $61,000 in income. And under the interest only PLUS (loan program) you need about $51,000," says Giebel.
How much the monthly payment increases after the first five years depends on the loan, but Giebel says generally, it's a few hundred dollars and because the rate is locked in, it takes out the guess work.
"We think this is an affordable (increase) and something people can plan on and they know that from day one. It's not like it's a variable rate and it's going to change," Giebel said.
The agency is also addressing another serious concern of first-time homebuyers. "Often, people hesitate to purchase their first home because they fear that if they lose their job, they will lose their home as well," says Theresa Parker, Executive Director of California Housing Finance Agency.
The HomeOpenersSM mortgage protection program is included at no extra cost on all California Housing Finance Agency conventional first mortgage loans, that have the agency's mortgage insurance.
"We will give those borrowers our HomeOpener's mortgage protection program. In the industry it's called, involuntary unemployment insurance. So if you become unemployed we will make your payments for six months during the first five years (of the loan) up to $2,500 a month... They don't have to be six months in a row. They could be three (months) and then you'd be unemployed again and it would be three (months)," says Giebel.
However some caveats apply, such as you cannot be self-employed. Certain income and housing price limits apply for the interest only PLUS and the HomeOpener's, for more details and qualifications visit their site .
The agency has been in business since 1975. Utilizing bonds instead of tax-payers' money has enabled the agency to invest in more than $13 billion to help more than 130,000 California families buy homes.
