At last, their first

Los Angeles Times Staff Writer

By Diane Wedner, Times Staff Writer

TODAY'S roiling mortgage market and still-high prices have made buying an entry-level house in Southern California seem about as likely for struggling first-time buyers as owning a villa at Italy's Lake Como. At least, that's how Christopher and Hedy Maar saw it. Then lightning struck.

The couple, who had been renting a North Hollywood house for five years, learned early this summer about state- and city-government programs for first-time buyers needing financial help purchasing a home.

Shortly after attending 12 hours of home-buying classes -- the first rung of the assistance ladder -- they found the brick-trimmed Granada Hills house with beam ceilings they now call home. It was listed at $479,950, a bargain by Valley standards but a stretch for the 37-year-old self-employed construction contractor, his wife who works part time and their family.

"I was surprised we were able to do it," Christopher Maar said. "It's rare in life when you dream of something like this and it works out so well."

The Maars, along with a growing number of other first-time buyers, owe their good fortune to a variety of programs that serve low- and moderate-income Southern Californians. Most are government sponsored, although some are private. Plus, the changing market has created some foreclosure-buying opportunities.

The help comes in the form of down-payment assistance, first mortgages and "silent" loans -- second, third and fourth mortgages that do not have to be repaid until the end of the loan period, or until the house is sold or refinanced. Most silent loans are repaid with interest -- even if the homes do not appreciate in value.

These are all 30-year (or longer) mortgages, not the sub-prime loans that have made headlines. Strict income and home-price ceilings must be met.

Finding the right program to fit buyers' budgets and getting through the process is no cakewalk, and expectations about the "perfect" house often must be lowered. A host of organizations provide education and counseling, and some also offer flexible mortgages to low- and moderate-income families.

To qualify for loans from the California Housing Finance Agency, or CalHFA -- the state agency provides financing for first-time buyers who fall within specific income ranges -- a household of three or more people in L.A. County may earn no more than $98,420 for the moderate-income program, or $61,272 in the low-income program. In Orange County, the limits are $115,178 and $71,705, respectively.

The Los Angeles Housing Department, which offers assistance with down payments, closing costs and property rehab in dozens of the city's communities, sets the income limit for a four-person household at $59,200.

Navigating the process

The Maars are typical of moderate-income buyers who need help buying a home. Christopher, who often works at least six days a week, and Hedy, 34, who works part time in a dental office and cares for their two young daughters, tried for years to save enough money for a down payment, but as home prices escalated, their goal increasingly felt out of reach, Christopher said.

After hearing from a friend about local lending programs, Hedy visited the housing department's website at www.lacity .org/lahd to see if her family qualified. It did. Then Donna Reino, a counselor at Los Angeles Neighborhood Housing Services, a nonprofit lender and community developer, helped the Maars navigate the loan process.

Because of their excellent credit, zero debt and an income within the guidelines, they qualified for three loans to purchase a 1,000-square-foot, two-bedroom home on a 7,500-square-foot lot. They also were eligible for a 1% down payment with their 12-hour home buyers' education certificate, although they put down $10,000, or closer to 2%. The house was bank-owned and needed work, which helped price it within their programs' parameters and their budget.

The Maars' CalHFA first mortgage of $377,623 is a 35-year fixed loan, which they got at 6% interest. By comparison, in August, non-CalHFA borrowers paid at least 6.5% on 30-year-fixed conforming loans; 35-year mortgages, which are unusual, typically cost more.

The couple also qualified for a CalHFA 30-year silent-second mortgage of $12,500, at 6.75% interest. Their $87,694 third mortgage is through the Los Angeles Housing Department; the "MOD 120" loan is for moderate-income home buyers needing help purchasing and rehabilitating their homes. Some of that loan will go toward fixing up the Maars' house; the remainder is "gap financing," the difference between the purchase price, with closing costs, and the amount of their first mortgage and down payment.

The second and third mortgages are deferred, meaning the Maars don't have to make monthly payments on them.

They are repaid as a lump sum in 30 years unless the house is sold or refinanced before then. They pay no interest on the purchase-assistance portion of the third loan but pay 3% simple interest on the rehabilitation portion. Their total monthly payment, including taxes and insurance, is $2,690. They also must share a percentage of the home's appreciation when the house is sold -- 3% in their case -- based on a housing department calculation for the purchase-assistance loan. That rule doesn't always go down easily with buyers.

"Some clients tell me they don't want to share the appreciation on housing-department loans. I tell them to stay a renter," said Roberta Berthold, a Golden Empire Mortgage lender in Sherman Oaks who specializes in low- and moderate-income buyer programs. "The loan layering gets very complicated, and clients get frustrated, but I tell them it's worth it."

Rules for eligibility

It must be. In 2005, the Los Angeles Housing Department, for example, funded 37 low-income and 13 moderate-income loans. So far this year, it has funded 105 low-income and 169 moderate-income loans, according to the department. And cities throughout Southern California sponsor such programs, each with their own set of eligibility rules. Borrowers should consult their city's or county's local housing, community development or redevelopment agencies to check out the programs.

To qualify for a housing-department loan for down-payment assistance and closing costs in L.A., borrowers must be first-time buyers and purchase a home within the city. If married, both partners must be first-time buyers. The low-income loan ceiling is $90,000 for purchase assistance only and $115,000 for purchase assistance and rehabilitation. Other loans are available too.

The housing department's annual income limit for a low-income, one-person household is $41,450, and $47,350 for two people. There also are two moderate-income programs, which have higher income ceilings.

It's one thing for buyers to get mortgages. It's another to find homes they can afford, especially in Los Angeles and Orange counties. Counselors urge them to think condo. That's what Amy Gross did. The Orange middle-school math teacher, 26, began saving for a house in her teens. She lived at home while earning her college degree and teaching credential, to save every nickel.

Finally, with $20,000 in the bank and knowing she was eligible for a program to help teachers, Gross started looking for a condo about a year ago. She also signed up for a homeownership class, where she met Bonnie Morris, homeownership manager for the Affordable Housing Clearninghouse in Lake Forest, an Orange County nonprofit.

To pay for her two-bedroom, $285,000 condo -- the 900-square-foot foreclosed unit is a bargain in Laguna Hills -- Morris guided Gross to two CalHFA loans: $230,000 for her first mortgage and $12,500 for the second. Her $40,000 third mortgage is from Orange County's Mortgage Assistance Program. She got an $8,580 fourth loan from the state's Extra Credit Teacher Program, which requires that the borrower teach in a low-performing public or charter school.

Gross' monthly payment is $1,600, plus $250 in homeowners' association fees. Her three subordinate loans are deferred, and she used some of the money to fix up the unit.

"Being low-income, I thought I would never own," Gross said. "I'm thrilled."

In Los Angeles, low-income buyers also can get funds through the housing department's American Dream Downpayment Initiative. The loans are equal to 6% of the purchase price or $10,000, whichever is greater. The amount is added to the purchase-assistance loan.

The city's Mortgage Credit Certificate Program issues certificates allowing home buyers to claim up to 20% of the annual interest paid on their mortgages as a federal income tax credit.

Those who live in other parts of L.A. County get a break too. The county's Community Development Commission sponsors the Homeownership Program, which includes education seminars, first mortgages, silent seconds, down-payment assistance and mortgage credit certificates.

Fannie Mae and Freddie Mac, the nation's largest providers of mortgage money, offer their own assistance. Fannie Mae's Flexible 97 and Flexible 100 programs help buyers with limited down payments and closing costs, and their MyCommunityMortgage program offers 100% financing. Freddie Mac's Home Possible Mortgages allow zero or low down-payment and flexible credit terms, among other options.

Private organizations also offer home-buying assistance to first-timers. The California Assn. of Realtors' Housing Affordability Fund distributes monies to local associations that partner with groups facilitating homeownership. The Assn. of Community Organizations for Reform (ACORN), an advocacy organization for low- and moderate-income families, has collaborated with the Bank of America on a program with 100% financing and no private mortgage insurance on loans of up to $500,000. Korean Churches for Community Development in Los Angeles offers home-buying education and loan counseling for first-time buyers. Cities such as Pasadena, Inglewood and Fountain Valley provide home-buying assistance; the programs vary from city to city and county to county. The bottom line is, help is out there.

"Owning a home has changed my life," Christopher Maar said. "I look at my wife and she's happier every day."

You can't put a dollar figure on that.


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