A Chance for a First Home

SPECIAL TO THE TIMES

A renter all her life, Nancee Daly had been thinking about buying a home for years, but never took a hard look at her options until her mother's death. Her mother, Pearl, who died of emphysema in March, had one dying wish: that her daughter be able to buy a home. "I really want to honor that," Daly said.

An inheritance from her mother would cover the down payment on a starter home, but that still left Daly facing some serious obstacles.

Home prices in the Miracle Mile neighborhood in which she has rented for nearly a decade have skyrocketed 125% since the summer of 1995. And she's concerned about making monthly mortgage payments on her commission-only earnings as a facialist.

Daly said that although she has built a strong client base by giving facials for more than 14 years at a spa near the Beverly Center, she still worries that if the economy worsens clients may cut such luxuries as facials and spa treatments. "When people have to tighten their belts," she says, "we are the first to go."

A film industry strike or new baby can cause clients to cut back, said Daly, whose net income fluctuates from $2,000 to $3,000 a month.

Daly had another fear. Her landlords had changed, and she was concerned about losing her 1,000-square-foot guesthouse rental. "I don't want to get in over my head. I want to do it responsibly."

Her first step in exploring homeownership was to see how much house she could afford.

Daly, who had no savings and only a few thousand dollars in a recently opened IRA account, had perfect credit. She has even paid off her 1994 Nissan Pathfinder.

"With cash and good credit," said Ken Scheele, of Community Mortgage Funding in Covina, "we can do almost anything. It's just going to depend on how much of a monthly payment she's going to be comfortable with."

That was easy for Daly to figure out. On gross pay that averages about $45,000 a year, Daly feels paying about $1,200 for rent and utilities is about her max.

In fact, Daly was able to qualify for an adjustable or fixed 30-year loan of $175,000 for the purchase of a $225,000 home. Either loan would increase Daly's monthly payment by only about $200. She'd still have what Scheele recommended: a six-month mortgage payment cushion in the bank after a down payment and closing costs.

Daly discovered that $225,000 could buy little in Los Angeles and next to nothing in the historic Miracle Mile area east of Beverly Hills, where the median home price last month reached $512,000. Said 40-year-old Daly: "It's incredible what's going on."

Sherry Rothschild, a real estate agent for more than 20 years and an expert on the Miracle Mile, said some of her tear-downs are starting at $500,000. In the $250,000 range, she said, "It is slim pickings."

Rothschild's first recommendation was that Daly consider buying a condo in the $219,000 to $259,000 range in West Hollywood or Culver City.

But Daly wouldn't hear of it. "I'm spoiled," she said. "I don't want the noise, and I exercise a lot in my home and don't want to create noise for anyone else."

With condos out, Rothschild recommended that Daly try to qualify for a larger loan and widen her search. "At $300,000," Rothschild said, "Daly will have more options."

Scheele was able to qualify Daly for a loan of $240,000 that--with $67,000 down and closing costs--would bump her up into the $300,000 price range.

At that level, Daly could choose loan options: The first was an adjustable mortgage with a fixed interest rate of 7% the first three years.

Starting the fourth year, the loan would have a 2% maximum annual adjustment rate either up or down. Refinancing the loan would be an option at any time.

Scheele also recommended a jumbo expanded 30-year loan with a higher interest rate of 7.75% that requires no income verification. Jumbo loans often are recommended for borrowers with uncertain monthly incomes: salespeople, insurance agents, actors and workers in service industries.

Daly could get into a more substantial home with either loan and still have about six months' mortgage in reserve for emergencies. But both options increased Daly's monthly payment to $2,000, nearly $800 above her comfort level.

Daly was not about to give up. She was able to increase her take-home pay $570 a month by changing her state and federal income tax withholding. Rather than receive a big income tax return at the end of the year, she opted for more monthly income.

"To have that extra income each month," Daly said, "is such a relief." She also is considering sharing any potential mortgage and costs with a roommate. That, along with the added income from changing her tax exemptions, should make buying in the $300,000 range a reality. As Daly put it: "This is a doable thing."

Daly is now considering nearly two-dozen houses Rothschild was able to locate in the $300,000 range. They include two-and three-bedroom homes in West Hollywood, Culver City and in the Mid-City area of Los Angeles.

She still has her heart set on Miracle Mile because of what she calls its strong sense of community and what would be a five-minute commute to work. But, she said: "I don't feel like I have to buy a house next week or next month."

Rothschild agreed. "My suggestion is that she wait a year and see what happens. This is a big purchase and the most important one she'll ever make."

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Allison B. Cohen is a Los Angeles freelance writer.

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