The high cost of going home

When a Los Angeles relative died unexpectedly this year, it put everything into perspective for Oregon residents Jennifer and Jonn Flores.

The couple, who had dated since meeting at Montebello High School in 1987 and had been married for eight years, realized that living far away means being too far from family. “It was a wake-up call,” Jonn said.

But with median home prices for existing single-family houses appreciating 11.1% in 2001 and 17.3% in 2002, according to DataQuick Information Systems, can the renters afford to buy here?

The couple had moved to a small town in Washington in 1998. They had two young children at the time and wanted a simpler lifestyle. Three years ago, they moved to Dallas, Ore.

“We were looking for a change,” Jonn said. “It’s really beautiful up here. Oregon looked like it would be a great place for raising kids.”

Although the couple rents a five-bedroom, 2,600-square-foot home for $800 a month, complete with a big backyard with a trampoline for Sebastian, 12; Madison, 7; and Drew, 20 months, Jennifer and Jonn have found that Oregon doesn’t have it all.

“We are used to more options of things to do and places to go,” Jonn said.

Big-city offerings aside, the Floreses are ready to make the move back, preferably to their old stamping grounds of Whittier or Downey, areas close to their extended family.

But they worry that with limited income, little savings, a 2-year-old bankruptcy, a low but acceptable credit score and a hot Southern California real estate market, returning will not be easy.

After examining their finances, however, Dan Weiss, a residential mortgage broker with Toluca Lake-based Golden State Lending, has been able to pre-approve the Floreses for the purchase of a $205,000 home with no down payment.

One complicating factor is that both expect to make more money in Los Angeles than their $4,200-a-month gross in Oregon. Their anticipated income is a factor in determining how much they can afford.

So Weiss calculated their anticipated salaries in Los Angeles using 2001 wage estimates available on the Web site of the Bureau of Labor and Statistics, www.bls.gov.

Jennifer expects to find work as a dental assistant. Jonn hopes to transfer within his company; he works in sales and customer support for the Supra division of GE Interlogix, a maker of key control systems for businesses.

After researching similar positions in the Los Angeles area, Weiss determined that, combined, the two could expect to gross $17,000 more a year, locally, than their current combined annual earnings of $50,400.

But Weiss said that in order to secure a loan, he needs pay stubs or letters of employment verifying those salaries.

He believes that the Floreses can afford a $1,504-a-month total housing payment, including property taxes and insurance. He recommended the couple consider an 80%-20% interest-only piggyback loan, which doesn’t require private mortgage insurance or a down payment.

The first loan, for 80% of the home’s value, would be a 30-year adjustable with an initial interest rate of 5.875%, barred from rising to more than 6%. The loan would be fixed for two years while the Floreses would pay only the interest. The downside would be that they would build no equity until they were able to refinance.

Paying only the interest, Weiss said, would “get them the smallest possible payment to allow them to get the largest-priced house.”

The second loan would be for 20% of the home’s value with a fixed interest rate of 11.25% for 15 years. “They would have had an interest rate about 2% lower on the second loan if they had had money down or a higher credit score,” Weiss said.

Another downside to the 20% loan is that it comes with a 15-year balloon payment, meaning that it will have to be repaid in 15 years.

To avoid that, Weiss recommends that the Floreses refinance both loans after two years, combining them into one larger loan. Another option: They could pay $472 a month instead of $398 on the second loan to pay it off in 15 years.

If the Floreses are not able to refinance in two years, Weiss said, “living with these loans is not a horrible thing.... There is not a doomsday situation if they have to keep these loans.”

Jennifer and Jonn quickly learned how little $205,000 could buy in the Los Angeles area. There were only a few homes -- all unsatisfactory -- available in that price range in Whittier, where, as of June, the median price for a single-family home was $289,000. In Downey, the median price was then $335,000.

Like many other first-time home buyers, the couple turned to the Antelope Valley, where, according to real estate agents and analysts, the market is still relatively affordable.

Carol Coppola, a relocation specialist with Century 21 Doug Anderson in Lancaster, found five properties in the Lancaster-Palmdale area that met the family’s criteria of having at least three bedrooms, no fewer than 1,400 square feet and a pool, a dream of Jennifer’s.

There were two properties that the Floreses especially liked. One was a one-story 1,400-square-foot, three-bedroom, two-bath home in Palmdale with a pool, spa and shaded patio area for an asking price of $190,000. The other was a two-story 1,638-square-foot four-bedroom, three-bath home in Lancaster, also with a fenced-in pool, spa and wooden deck and gazebo for $195,000.

In fact, the Floreses liked both houses so much that they are considering moving right away instead of waiting a year to find jobs and save more money for moving.

“That’s the dilemma we face,” Jennifer said. “Now that we know we could move and live in Los Angeles, our question is, do we go or wait a year? Prices seem to be going up.... We are at a crossroad.”

The Floreses’ concerns are valid, according to Coppola. Prices in the Lancaster-Palmdale area have been steadily rising 1% to 2% a month since January, she said.

“Prices will stay on track like this for the next couple of years,” she said. “If they want to at least come down and take a look, I would advise them to do so. And if they are anxious, I would tell them to just do it.”

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This month’s makeover

Buyers: Jennifer and Jonn Flores

Occupations: Jennifer, 31, works in health insurance customer service but is also a licensed dental assistant and wants to change jobs. Jonn, 32, is in sales and customer service for a manufacturer of lockboxes.

Gross monthly income: $4,200. Their income is expected to rise to $5,618 after they move.

Goal: To return from Oregon to the Los Angeles area to be near family.

The problem: With limited income, little savings, a 2-year-old bankruptcy and a red-hot real estate market, the Floreses are limited in what they can afford.

Recommendations:

* When moving to another state, check the Bureau of Labor and Statistics Web site, www.bls.gov, for local salaries.

* Consider an 80%-20% piggyback loan to avoid having to pay private mortgage insurance, typically needed for those putting less than 20% down.

* Consider an interest-only loan option for the short term that will provide lower monthly payments.

* Select a loan with a balloon payment, refinance as soon as possible to eliminate the loan or consider stepping up payments to pay the loan off before the balloon payment is due.

Meet the experts:

Dan Weiss specializes in first-time home buyers. He has been a mortgage broker since 1983 and has been with Golden State Lending since 1987.

Carol Coppola has been in the real estate business for 16 years and is relocation director for Century 21 Doug Anderson in Lancaster.

Allison B. Cohen can be reached at a.cohen@ix.netcom.com.