It’s no secret that state and municipal employees, from teachers to police officers, often can’t afford to live in the communities where they work. To help those first-time homebuyers, State Employees’ Credit Union ($28.3B, Raleigh, NC), which has many teachers and other public service employees as members, offers up to 100% financing for a maximum loan amount of $400,000 as well as an advance to help cash-strapped borrowers with closing costs.
SECU defines first-time homebuyer generously. The program is open to any new state or public school employees, existing employees who are relocating because of a new job with the state, or members who haven’t owned a home in the past three years.
CU QUICK FACTS
State Employees' Credit Union
data as of 3.31.14
HQ: RALEIGH, NC
12-MO SHARE GROWTH: 7.0%
12-MO LOAN GROWTH: 10.0%
But there’s no question that SECU developed this program with teachers in mind. In fact, it created a similar program — STAR mortgage, which stands for state teachers and retired — in 2001 before merging it with the credit union’s regular first-time homebuyer program two years ago.
Like SECU’s first-time homebuyer program, STAR also offered 100% financing and an advance for closing costs, but it had an added perk in the form of waived origination fees. When mortgage interest rates were high, it made sense to keep STAR separate so that buyers got a free pass on paying the credit union’s origination fee, which at the time was about $1,000.
As 30-year fixed rates declined to record lows in 2012, first-time homebuyers already had the benefit of the most affordable mortgages consumers had ever seen, making both the fee waiver and the separate STAR program unnecessary from a competitive standpoint.
“Because of the interest rate environment, our 100% loan, in and of itself, is competitive enough,” says Mark Coburn, senior vice president of lending development at SECU. “We’re going to get those loans anyway so there’s no need to waive the origination fee anymore.”
So to cut costs and simplify its offerings, the credit union rolled STAR into its first-time homebuyer program. In exchange for no longer waiving the origination fee, SECU doubled the cash advance for closing costs to $2,000 and extended its pool of eligible buyers to include new or relocating state and public school employees. We didn’t want to limit the product so that teachers or state employees couldn’t get it if they relocated for work, Coburn says.
Teachers especially needed the program if they were to qualify for a home. The average salary for new teachers in North Carolina is little more than $30,000, ranking the state 45th nationally, according to the National Center for Education Statistics.
Often, new teachers just don’t have the money for a down payment, Coburn says. “So they still need the 100% financing and the first-time homebuyer program.”
Getting The Word Out
Merging the two programs certainly hasn’t harmed business. In 2013 SECU estimates it funded 3,437 mortgages totaling $489.7 million for school employees compared with 2,446 mortgages worth $339.4 million in 2011, the last full year that STAR was offered. SECU still has 305 STAR loans with $43 million in outstanding balances on its books.
The credit union doesn’t advertise its first-time homebuyer program because it doesn’t really need to. Word of mouth and credit union presentations to core membership groups have proven effective at reaching eligible members. Plus, when the state hires new teachers, it conducts seminars before the school year starts to explain healthcare and benefits packages. In the process, teachers learn of their eligibility for SECU membership. SECU even sends representatives to these benefits sessions to explain the credit union’s products and encourage new teachers to become members. The homebuyer program features prominently in the sessions. It’s probably the main way we get teachers into the program, Coburn says.
Key Features Of The Program
Members are eligible if they haven't owned a home in three years, are new employees of a North Carolina state agency, or are existing employees who are relocating for work with the state
New or relocating employees must finance their home within 12 months
Financing available for up to 100% of purchase price
Maximum loan amount of $400,000
$2,000 may be advanced to help with closing costs