High prices, down payments are hurdles to new buyers
OPTIONS INCLUDE SMALLER HOMES, FINDING SOURCES OF ASSISTANCE

By the Mercury News

Government agencies and lenders sometimes will help with down-payment assistance or customized loan programs.

Still, buyers most likely will have to make compromises, such as starting with a condominium or a smaller, older house or duplex in a more affordable neighborhood.

When houses and condos are combined, the median price in Santa Clara County was $660,000 in March. That means half the homes sold for more than that amount, and half sold for less.

With the median price so high, most first-time buyers can't afford a dream house in more expensive communities such as Palo Alto or Los Gatos, where starter cottages can sell for more than $1 million.

A search this month of homes in Santa Clara County at www.mlslistings.com found 429 single-family houses and condominiums with at least two bedrooms for sale with asking prices of $500,000 or less.

By far, most of those properties were condos and townhouses. Only 16 single-family homes were listed in that price range, in communities such as East San Jose, South San Jose and Morgan Hill. On the other hand, two-bedroom condos ranging in price from under $300,000 to $500,000 can be found throughout the valley.

Of course, many buyers who work in Silicon Valley choose less expensive homes outside the Bay Area. But that approach comes with two trade-offs. Realtors say homes grow in value faster in the Bay Area than in the Central Valley; and workers who buy homes near their jobs avoid a more expensive and time-consuming commute.

Fortunately, there's help for buyers seeking to close the gap between their finances and Silicon Valley's high real estate costs. Government agencies, employers and lenders have teamed up to offer down-payment and closing-cost assistance, as well as mortgages that can cover 90 percent to 100 percent of the purchase price.

First-time buyers in the valley who meet income and purchase-price limits can take advantage of four types of assistance:

• Mortgages through agencies such as the California Housing Finance Agency, or CalHFA, which offers loans at below-market interest rates. Borrowers work directly with approved lenders, but the loans are backed by the agency (www.calhfa.ca.gov).

CalHFA-backed loans in Santa Clara County are available to one- or two-person households with incomes up to $127,320 a year, or households of three or more with incomes up to $148,540.

• Santa Clara County's Mortgage Credit Certificate program allows borrowers to take a federal tax credit of 15 percent of their mortgage payments. The credit reduces the homeowner's federal tax bill directly, unlike the mortgage-interest deduction, which reduces the amount of income on which the homeowner pays taxes.

Information on the program can be found at http://tinyurl.com/r4w3x.

• Down-payment assistance. CalHFA, for example, offers a deferred loan of up to $25,000 for borrowers who need help with a down payment in high-cost areas such as Santa Clara County. The loan must be repaid when the home is sold, or when a homeowner refinances for a larger amount than the balance of the original mortgage.

Additional loan and down-payment assistance is available to teachers, and to buyers who purchase in targeted revitalization areas, such as downtown San Jose and communities in the city's Strong Neighborhoods Initiative.

Neighborhood Housing Services Silicon Valley (www.nhssv.org) also offers first mortgages, home-buyer education and down-payment help to first-time buyers.

• Closing-cost assistance. The Housing Trust of Santa Clara County (www.housingtrustscc .org) has offered a deferred loan of up to $6,500 that can be used for closing costs. The loan must be repaid when the home is sold or when a borrower refinances.

The Housing Trust is funded by contributions from government, employers, foundations and individuals.

Credit score

Lenders, of course, want to make sure that borrowers are able to repay their mortgages. They favor buyers with stable jobs and a good record of paying their bills. Realtors and bankers advise would-be buyers to examine their credit histories and learn their credit scores.

Borrowers who don't have good credit would have to pay a higher interest rate, which would result in higher payments. And that, ultimately, would make it harder to qualify for a loan.

Individuals with good credit -- a score of about 620 or higher -- and a stable job history may find they qualify for a larger loan than they might have thought.

Lenders traditionally limited borrowers' housing costs to 28 percent of their incomes, and total debt payments to 36 percent. In California's high-cost housing markets, however, lenders have stretched their limits for a borrower's total debt load -- sometimes to more than 40 percent.

 

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