Room for One More

Elizabeth Paul would be perfectly content living another 10 years in her one-bedroom, 850-square-foot rental near Beverlywood in Los Angeles. But the 39-year-old teacher--a self-described pack rat--is running out of space, but not because of her four cats or the piles of books overflowing her living room bookshelves and window sills. She’s planning to become a foster parent.

“You need to have a two-bedroom place if you’re going to have a kid,” she said.

Yet homeownership seems unattainable to Paul, who grosses about $45,000 a year teaching English and English as a Second Language at Palms Middle School in Los Angeles. Not only is her income limited, but Paul has only $5,000 in savings, and she once filed for bankruptcy--the only blemish on her otherwise perfect credit history.

“The whole thing seems very bleak,” she said.

But having been accepted as a foster parent has motivated Paul to try to get into the housing market, especially now that interest rates have made it less of a stretch to move from paying rent to a mortgage.

“I was looking for a larger apartment last fall,” she said, “and $1,200 was the cheapest I could find.”

The good news is that even with Paul’s bankruptcy, Elva Pacific, an operations manager with Provident Bank Mortgage in Riverside, was able to qualify Paul for a loan for the purchase of a $180,000 home.

“Paul has made a good faith effort” in reestablishing herself after the bankruptcy, Pacific said. Bankruptcy can be overcome if the borrower is given an opportunity to explain the circumstances.

“I put a lot of things into this decision,” Pacific said. “You may be declined [for a loan] quickly because of a bankruptcy if a computer is doing the work. But when a human being is involved, that can be a different story....

“You might have to roll up your sleeves a little bit,” she said, “but if you are determined, you’ll get the loan.”

The rules regarding bankruptcy vary depending on the type of loan, Pacific said. For FHA or VA loans, lenders look for a two-year period of good credit following a bankruptcy. For conventional loans, lenders demand four years of solid credit and proof that credit has been reestablished.

In Paul’s case, she had signed for the purchase of an SUV for a friend. But when her friend reneged on the $450-a-month payment, Paul took over, even though she was living on student loans while getting her teaching credential and master’s degree in education at UCLA.

She ended up accumulating $20,000 in debt on credit cards, some with interest rates of 25%. She declared bankruptcy in 2000, on the advice of a bankruptcy lawyer.

Four months later, the bankruptcy was discharged, meaning Paul was relieved of her debts. She opted, however, to repay the $35,000 she owed in student loans--$210 a month in payments she’s kept current.

“She didn’t back out of those student loans,” Pacific said. “That was good.”

A letter of explanation to the FHA, explaining these circumstances, would be sufficient to clear the bankruptcy for loan approval, Pacific said. “I consider [her bankruptcy] a one-time thing.... There are chronic abusers of credit and then there are isolated issues like this one.”

With the bankruptcy issue solved, Pacific recommended a 30-year FHA loan with a 6.5% interest rate for Paul in the amount of $174,600. That type of loan would give Paul a monthly housing payment of $1,430--substantially more than the $650 a month she’s been paying for rent.

But as Paul suspected, her mortgage wouldn’t be much more than the rent for many two-bedroom units on the Westside.

The loan would require 3% down, or about $5,400, and an estimated additional $6,000 in closing costs--about $11,000 that Paul does not have. To bridge that gap, Pacific recommended that Paul apply for a special program administered by the Los Angeles County Community Development Commission called the Mortgage Revenue Bond program.

The program provides a 3.5% gift for first-time home buyers purchasing property in Los Angeles (outside Los Angeles city limits) and Orange counties.

The money does not have to be repaid and can go toward making a down payment on a home or for closing costs. All that is asked of recipients is that they attend an educational workshop. Currently, the maximum income limit for the program for one- to two-person households is $65,400; for families of three or more, the maximum income limit is $76,300, according to Los Angeles County program administrators.

The city of Los Angeles also offers a similar program for first-time home buyers purchasing property within city limits, according to Doug Smith, manager of the homeownership unit of the city’s Housing Department.

Additionally, both agencies offer teacher-assistance programs where credentialed educators teaching in low-performing schools are given $7,500 toward the purchase of a home. Paul was not eligible for that program because Palms Middle School is not considered a low-performing school.

“[These programs have] really made the difference for first-time home buyers,” said Jewel Warren-Reed, with the Community Development Commission. “Some people can make a housing payment, but they just can’t come up with the down.”

In Paul’s case, the program would give her about $6,000 for the down payment on a house. She would then need to come up with the rest--about $5,000 in closing costs.

Although Paul could deplete her savings, Pacific recommended she instead negotiate with the seller to pay for some or all of her closing costs. Doing so, Pacific explained, would free up Paul’s savings for clothing and furniture for her foster child.

Having a seller pay a buyer’s closing costs, is “a typical practice in this price range,” Pacific said. Most sellers, she said, expect this and price homes accordingly. But Paul became immediately discouraged with how little inventory there is in the $180,000 price range.

In fact, Michael Layana, a real estate broker with Cavanaugh Realtors in Culver City, was able to find only four properties--all two-bedroom condos--in Paul’s price range in the neighborhoods of West Los Angeles, Mar Vista, Venice, Palms and Culver City--all short commutes to Paul’s work.

Layana indicated that the summer months might bring more choices for Paul. “You never know,” he said. “There could be a bunch of new homes that go on the market tomorrow.”

But if Paul waited, that would have severely pushed back her foster-care plans. So she decided to look at two of the properties--both located in woodsy, tree-lined large complexes in Culver City--but quickly decided that neither felt like home.

Both condos were small--one was 852 square feet, the other was 972--and the units were listed at $165,000 and $179,000, respectively. Instead of the open, grassy feeling she had envisioned for her new family life, the properties were dormitory-like with multiple buildings, winding pathways and long, dark hallways.

“I really don’t want to live in a big complex,” she said. She was also put off by the homeowners association fees of $189 and $289 a month.

Consequently, Paul has opened her search to the communities of Lennox and Inglewood--about 10 miles south of her workplace, but where single-family homes are within her price range, and neighborhoods have grassy yards, tree-lined streets and a child-friendly atmosphere.

“It will be great for my foster kid to have a yard,” she said of one two-bedroom property she found in Inglewood and hoped to bid on. “I would just need a fence to enclose it and that would be a great place for a kid.”

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This Month’s Make-Over

Home buyer: Elizabeth Paul, 39

Occupation: Seventh-grade schoolteacher

Gross annual income: About $45,000

Goal: Purchase a two-bedroom home so she can have enough space to become a foster parent.

The problem: Paul had a bankruptcy less than two years ago, has little savings for a down payment and wants to live on the Westside near her employment.

Recommendations:

* Talk openly about bankruptcy, asking for a face-to-face meeting with a loan officer to explain circumstances.

* To reestablish credit without taking on another credit card, work diligently to build consistency by paying car insurance premiums on time and by keeping a balanced checking account.

* Ask lender to shop for any and all first-time home buyer programs offering financial gifts.

* Negotiate--especially in low-priced starter homes--that the seller pay all or some of the closing costs. Sellers are expecting this and have priced their homes accordingly.

Meet the Experts

Elva Pacific has worked in the real estate mortgage business for 24 years. She is the operations manager at Provident Bank Mortgage, headquartered in Riverside County.

Michael Layana has been with Culver City-based Cavanaugh Realtors for 10 years. Cavanaugh Realtors specializes in Culver City, Mar Vista, Santa Monica, Beverlywood and other West Los Angeles cities.

For More Information

Mortgage Revenue Bond program: (323) 890-7249 or www.lacdc.org/programs/homebuyer/socal/choice.shtm

City of Los Angeles’ Housing Department programs: (213) 367-9062 or www.lacity.org/lahd

For information on the county’s teacher assistance program: www.lacdc.org/schfa/teachers/index.shtm

For information on the city of Los Angeles’ teacher assistance program: www.lacity.org/lahd

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Allison B. Cohen is a Los Angeles freelance writer.