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Seeking an Entry Point


Burdened with huge student loans and lacking a down payment, Maria and Eric Burkhardt have put off buying a home for more than three years.

Although they're eager to jump into the market, the Irvine couple worry that if they buy now, at what they consider the peak of the market, their house may lose value, making it difficult to move up later.

"We need a house to grow with us and a family," said Maria Burkhardt, 34, a physical therapist. "It's scary to buy now, but I know it will only get worse if we wait."

Maria's fears are not unfounded. At the end of the first quarter of 2001, the median price of a condominium in Irvine was $249,000, a 10.7% jump from $225,000 the year before, said John Karevoll, an analyst at DataQuick Information Services. The median price for a single-family detached house in Irvine last quarter was $362,000, up 6.9% from a year ago.

Larry Garcia, a home loan expert at Wells Fargo Bank in Long Beach, said that prices are expected to rise further by the end of summer, so putting off a home purchase will not improve the Burkhardts' situation.

"When people wait to save money, they usually don't," Garcia said. "They've got car payments, insurance and other expenses. Getting into that first home will help them financially, because it's the only real tax-deduction middle-income folks have."

Eric Burkhardt, 39, a strength and conditioning coach, said he and Maria are looking to buy a three-bedroom, single-family detached home or two-bedroom with den in Irvine. They also are willing to consider a townhouse in the Orange County community known for its excellent schools.

The couple currently rent a 1,100-square-foot, two-bedroom townhouse for $1,125 a month, including utilities. With their combined $7,500 gross monthly income, they feel comfortable going up to about $2,000 a month for a mortgage, but so far the townhomes they've looked at have been in the $275,000 to $290,000 range, which they believe would require a considerably higher monthly commitment.

To begin the loan qualification process, Garcia ran a credit check on the Burkhardts, whose greatest concern was Maria's $125,000 college debt she's committed to paying off over 20 years. Their recent $12,000 credit card debt has been paid down to $2,600, Eric said.

The couple's credit record came up clean, with no late payments, bankruptcies or foreclosures, red flags that require explanations and often reduce an applicant's chances of qualifying, Garcia said.

The Wells Fargo lender recommended that before the Burkhardts begin the loan application process, they pay off the remainder of their credit card debt, which will lower their $1,380 monthly total expenses by $186. By reducing that monthly payment, the couple could increase their purchasing power by $20,000, Garcia said.

"Getting rid of smaller debts--those department store accounts, for example--can bump buyers up to a different buying bracket," Garcia said.

Garcia also recommended that Maria consolidate her student loans, reducing the $1,000 monthly payments by half by extending the repayment term. The decrease in payments will enable the couple to qualify for a higher purchase price, while keeping their debt-to-income ratios within required guidelines, Garcia said.

Once the student loan consolidation is complete and the credit card debt is paid off, Garcia said the couple has two options: buy a $245,000 home, with monthly payments of about $2,178, including association fees, or if they want to stretch, buy a $275,000 house, with monthly payments of about $2,500.

Under the first plan, which is more comfortable financially but limits their Irvine purchasing options, the Burkhardts could get into a single-family residence or townhouse with 0% down.

To get 100% financing, the couple must secure a federally backed first trust deed of $238,000--Fair Housing Authority, or FHA, loans are limited to $239,000--and a "silent" second mortgage of 3% of the purchase price, or $7,350.

The silent second mortgage is available through a California state bond program designed to help first-time buyers with down payments. Under the loan terms, borrowers do not have to pay off the loan until they sell their house or refinance the first trust deed. So borrowers don't have to pay make payments on the second for 30 years, if they keep the house that long, Garcia said.

If borrowers do sell or refinance within the 30 years, they are required to pay back the loan in full, at 3% a year.

To cover the $5,850 in closing costs, impounds, interest, association dues and property tax, plus $2,500 for the credit card payoff, Garcia recommended that the couple borrow $8,500 from their 403B retirement account.

Although the Burkhardts expressed relief at keeping their monthly payments below $2,200 with the first plan, they doubted they would be able to find even a townhouse in that price range, based on what they have seen so far.

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