AMY and Bob Salessi are cutting a few corners to meet their mortgage payment, which consumes about a third of their income. They've reduced their 401(k) retirement contributions, eat out less and rely on relatives to help with child care. They're also counting on quarterly work bonuses to pay insurance and taxes.
The couple, both restaurant employees, bought a three-bedroom Glendora home in the $500,000 range three weeks ago with 100% financing.
"We'll have to struggle for a while, but it's worth it for the house," Amy said. "With the market going up, we couldn't wait any longer."
Apparently a number of Californians feel the same way.
More than 50% of state residents who bought in the last two years spent more than a third of their pretax household income on housing, the top threshold recommended by the Department of Housing and Urban Development. An additional 20% paid out more than half their earnings, according to a study released last month by the Public Policy Institute of California.
The run-up in debt has been fueled by soaring home prices and made possible by lenders willing to give borrowers mortgages that eat up 40% to 50% of their total income, the study noted. And even among those who spend less than 30% of their income on housing, an increasing number have interest-only, no-down-payment and negative-amortization loans, leaving themselves vulnerable down the road.
"These loans can be wonderful money-management tools," said Michael Stoltz, president of Earth Investment & Mortgage Co. in Santa Barbara. But, he warned, borrowers need to truly understand how they work.
Although the state median income is the ninth highest in the country, homeowners are paying the second-highest monthly housing costs, according to American Community Survey data released last week by the U.S. Census Bureau.
Quite simply, Californians are stretching further than people in most other parts of the country to meet their mortgage payments.
When Rancho Cucamonga buyer Seth Rowlands qualified for a loan to purchase a three-bedroom fixer for $370,000, his lifestyle took a major hit. Because he used all of his available money to buy the home, with little cash left over, the Century 21 agent is sleeping on an air mattress and has yet to buy appliances and furniture.
"For the first four months after I bought the house, I came home from work and ate dinner in my car," Rowlands said. "I made home-buying a goal. If I have to sacrifice and struggle, it's worth it, knowing I have a home."
Indeed, Moe Abourched, a real estate agent with Re/Max on the Boulevard in Sherman Oaks, said many people, prompted primarily by low interest rates, are prepared to do whatever it takes to get into a home.
Blair and Elizabeth Newman just bought a three-bedroom house in Lakewood for $500,000, with help from Elizabeth's grandmother, who provided the down payment. To afford the house, Blair, 27, is working two jobs -- he's a teacher and a real estate agent. Elizabeth, 23, is a Starbucks employee.
"It was important to me to establish myself now," Blair said. "We'll enjoy the fruits of our labor when we're older."
In the lower and middle price ranges, Abourched said, taking a hard look at the financing is particularly important. "It really depends on their goal.... If they want to stay in the property for more than, say, five to seven years, I advise them to go for longer financing. That's because I think we're going to be in a higher interest rate in the market in the next five to seven years."
Although she called it "a big commitment," Colleen Lynch and her husband, Jim Flynn, felt the timing was right when they purchased a second home in Beverlywood on L.A.'s Westside for $669,000. Helping considerably was the fact that they found a renter for their previous home, where they lived for three years, which meant they wouldn't have to cover two mortgages.
"If we hadn't found a renter it would have been very difficult if we had had to carry both mortgages," she said. "With both of us working, we were able to do it."
Like others burdened with home debt, Lynch, a 32-year-old teacher, said she and her husband, a 33-year-old film editor, are prepared to live on less.
"We don't have as much money as I'd say we had in previous years, but we've been doing fine. We knew the first year probably would be toughest."
A key to determining how much debt to take on, said real estate agent Bob Kramer of Boardwalk Realty in Culver City, is for buyers "to find a comfort level as to what they can afford every month. I try to warn them about living month to month only to pay their mortgage. However, if they decide to wait, they run the risk of being totally priced out of the market."
He also noted that it's important for people to look ahead.
"I remind them that while they might be able to take on a large mortgage payment today, things could change if one spouse or the other is laid off, or if the wife becomes pregnant," Kramer said. "It's a very difficult market now for buyers."
Aya Takeoka is among those weighing the sacrifices and benefits of becoming a homeowner. The 25-year-old UCLA graduate student in medicine has been scouring the Los Angeles area for a two-bedroom condominium in the $250,000-to-$400,000 range.
"Paying rent is my priority in terms of my finances," said Takeoka, whose income doing medical research is less than $30,000 annually. "It will be the same for paying the mortgage."
The value of owning her own home trumps her reservations over the prospect of a major debt load, said Takeoka, who will receive help on the purchase from her parents. At least with homeownership, she knows she will have something to show for her investment. "With renting, at the end, you get nothing."
To avoid regret, Takeoka is making sure not to bite off more than she can chew.
"I decided I'm not going to take out loans that I can't pay," she said, "so I think I'm OK."
Chuck Green is a freelance contributor. Diane Wedner is a Times staff writer.