Law Would Ease Home Buying for Teachers and Police

Millions of public and private schoolteachers, firefighters, police officers and other local government employees nationwide could qualify to buy homes with minimal down payment cash and deeply discounted property prices under federal legislation heading for final action in the U.S. House of Representatives.

If enacted by the Senate later this session, as expected, the law could open the possibility of buying a home to large numbers of middle-income public employees and private school personnel who currently find little or nothing affordable in the communities where they work.

The new initiatives are part of the American Homeownership and Economic Opportunity Act of 2000, a massive bipartisan housing reform package crafted by the House banking committee.

Under the bill, teachers and “uniformed municipal employees”--primarily law enforcement and medical emergency personnel--will be able to obtain mortgages with 1% down for up to $219,849 in the continental United States through the Federal Housing Administration. The maximum loan limit will vary from area to area; in the very highest-cost markets of Alaska and Hawaii, the ceiling will be $329,774.

The 1% down requirement will sharply reduce what teachers and other beneficiaries of the program will need to bring to the settlement table.

Under regular FHA rules, a home buyer generally must be able to contribute at least 3% of the cost of the property with his or her own funds. On a $150,000 house, for example, a buyer would need $4,500 in cash, including gifts from relatives or friends, in the form of a down payment.

The buyers would also need to come up with 2% more to handle closing costs, prepaid expenses, title insurance, etc., either with their own cash or with contributions from the home seller.

“Putting together $6,000 or $7,000 [to buy a house] can be very tough for a lot of people, especially public employees,” said Michael Nester, senior loan officer for Irwin Mortgage Corp., one of the largest FHA lenders in the country. “Reducing that minimum to 1% will be an absolute boon” for buyers short on down payment cash.

On a $150,000 property, the down payment a teacher or firefighter would need would be $1,500. To qualify, teachers and school administrators would have to be “employed on a full-time basis . . . in a public or private school that provides elementary or secondary education” and must not have owned a home in the local school district during the prior 12 months, according to the House bill.

That means a teacher who owns a home outside the school district could qualify to buy a home inside the district using the 1% down plan.

For full-time police, firefighting, rescue or ambulance employees of local public agencies, the 1% down plan would carry the same 12-month requirement.

The program would also allow qualifying private and public school teachers and public safety employees to defer payment of the usual FHA loan insurance premium, typically about 2% of the mortgage amount.

The deferred premium would become due and payable if the borrower either sold the house or ceased to be a teacher or local public employee eligible for the program.

However, the amount of the premium payable would decrease by 20% a year during the period of homeownership, disappearing after the fifth anniversary of the closing.

Public and private school teachers would get additional home-buying help under the new legislation.

They would be able to buy houses at 50% discounts off appraised market values and with $100 down payments.

To obtain the 50% markdown, teachers would have to agree to use the house as a principal residence for at least three years. Although teachers could finance their homes with conventional mortgages, those who used FHA-insured mortgages could qualify for one of the smallest down payments available anywhere: $100 cash.

Under a section of the bill entitled “Neighborhood Teachers Act,” qualified teachers would be able to buy houses that the Department of Housing and Urban Development owns because of defaults or foreclosures by prior FHA borrowers.

Law enforcement officers--local, state and federal--could qualify for zero down payments if they buy homes in “locally designated high-crime areas” and use FHA financing.

As long as an officer buys a house for no more than its appraised value, he or she could obtain a nothing-down FHA mortgage, with closing costs and origination fees rolled into the loan amount. The officer would have to agree in writing to use the new property as his or her principal residence for at least three years.

The outlook on timing for the new home finance programs?

Assuming speedy Senate passage of a companion bill and speedy regulation drafting by HUD, nothing-down, $100 down and 1% down deals could be available late in 2000.

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Distributed by the Washington Post Writers Group.