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City lights are inspiring a hopeful buyer to save

May 18, 2003|Allison B. Cohen | Special to The Times

Kim Walters has done everything she can think of to get ahead: She has gotten a college degree, worked two jobs, had roommates to keep rent costs down and put off marriage and motherhood while focusing on a career. But the fiercely independent 33-year-old feels helpless about adding homeownership to the list.

"I could have a five-bedroom house in Maine, but then I'd have nothing to do," said Walters, who is director of publicity for an advertising agency. "I've done all the right things ... yet I can't get ahead in Los Angeles."

Many first-time home buyers seeking to close the gap between salary and the cost of living in a vibrant but expensive housing market share her frustration. The median price for a single-family home in Los Angeles County in April surpassed $300,000, according to DataQuick Information Systems. For condominiums, it was $236,000, up 20.9% from a year ago.

Despite the escalating prices, Walters said she would continue to pursue her goal of homeownership. "I want to show I've grown," said Walters, who has rented for 10 years since graduating from UCLA. "Staying in the same place shows that I am stable, but it doesn't show I've progressed either."

But with only $6,000 in savings, $19,000 in student loans and a monthly payment on a used $34,000 Mercedes E320, buying will be difficult.

Asking for help from her parents, who live in Villa Park in Orange County, is out of the question. "I want to do this on my own," she said. "It's time to move to a new stage of my life."

Patsy Grant, a home mortgage consultant with Wells Fargo Home Mortgage in Pasadena, said she thinks Walters can realize her dream of ownership, but only if she earns more and spends less.

After looking at a number of options based on Walters' fairly strong but not perfect credit, Grant tried to approve Walters for a standard Fannie Mae loan with 6% interest and only 3% down, or $4,500, well within Walters' savings. The loan would allow Walters to shop for a home in the $150,000 price range.

The monthly housing payment, including hazard and fire insurance, property tax and private mortgage insurance (a monthly fee that is required by lenders for home buyers not putting 20% down), would be $1,164, about the same as Walters' current Culver City rent and a reasonable 33% of her gross annual income.

But when Grant added Walters' hefty $567-a-month car payment to her monthly debt, the ratio stretched to 54%, too high compared with her salary and for a Fannie Mae loan, which has a percentage limit.

"Forty-one is the magic number," Grant said. "That car loan is really big."

Walters admitted the car was a splurge when she bought it two years ago. "I couldn't get a house, so I did the next best thing. I got a pre-owned Mercedes. If it comes down to downgrading, like getting a car that has lower payments, that would be OK."

Grant reworked the numbers to show Walters that if she were to drop her car payment to $250 a month, increase her savings and increase her salary by $5,000 a year, she would comfortably qualify. Still, where would Walters be able to find a home for $150,000 in today's market?

"I suggest Kim save a little bit more," Grant said, such as an additional $300 a month plus the savings from her lower car payment. She also recommended Walters set up an automated paycheck deduction directly into her savings account so she wouldn't be tempted to spend it.

"Without changing her lifestyle much," Grant said, "she could be putting $6,000 a year in her home savings funds."

While adding to her savings, Walters could focus on another goal -- going to graduate school -- without the burden of taking on homeownership and monthly mortgage payments. An advanced degree, Grant said, could "give Kim a dramatic increase in income."

When Walters is ready to shop, Grant said, her goal should be to purchase in the $200,000 price range.

"If I have to wait a year or two to buy," Walters said, "I'll be OK with that."

If she waits, her timing may be perfect. Like a growing number of other young professionals, Walters would like a downtown living experience and wants to seek out housing options there, such as existing high-rise condos or new lofts that have been converted from historic buildings.

"Downtown is actually coming to life again," said Jeremy Davey, one of many developers who have taken renewed interest in the area. "There is a sense that downtown is now a hip place to go."

Walters hopes to be part of it all. "I want to be on the upswing of this new renaissance," she said.

A studio condo at Bunker Hill Tower -- built in 1968 and located near the Los Angeles Music Center -- costs about $160,000, according to Mirza Alli, a broker at Bunker Hill Real Estate Co. One-bedroom condos, he said, are priced at $250,000, and penthouses can go for $1.5 million.

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