Two new loan programs -- a unique lease-option deal and a "junior mortgage" program -- are designed to take some of the heat off many struggling first-time home buyers in California and elsewhere and they couldn't have arrived at a better time.

The cost of housing has skyrocketed California during the past decade. The median price rose to $248,020 in September, a 13.4 percent increase over the $218,710 median for September 1999, according to the California Association of Realtors and real estate information partner Real Estate Solutions.

Home prices have more than doubled in the Golden State since the early 1990s. Of 345 communities surveyed in September, 306 revealed increases in median prices, as strong demand and short supplies continue to rock affordability.

Only three in 10 Californians can afford the state's median priced home, compared to one in two nationwide, CAR said.

In high-price areas, home buyers have a particularly difficult time coming up with a sizable down payment.

Lease option relief

To give more sticker-shocked buyers an opportunity to realize the American dream, Englewood, NJ-based First Financial Equities, Inc. and other lenders have teamed up with Freddie Mac to offer a new spin on an old creative financing technique.

Through a lease-purchase program, eligible buyers who come up with 1 percent down can lease a home for 38 months and then assume the balance of the mortgage payments or decline the purchase. The lease payment will be based on the true monthly cost of the mortgage, plus an administration fee.

Participating communities use municipal bonds to subsidize an additional 3 percent down and all closing costs for qualified first-time home buyers with household incomes between $35,000 and $77,500. The maximum loan is $252,700. With the existing fixed rate of 8.25 percent, monthly payments (principal and interest) are approximately $1,943 for the maximum loan. Qualified participants are not required to pay private mortgage insurance, but the additional nominal administrative fee will be tacked onto the monthly payment.

Available in 40 California cities and soon to be released nationwide, the loan could be cheaper, based on market rates when the program launches in a given city.

The 1 percent down payment is considered a participation fee (much like a security deposit for a rental contract) the potential home buyer will forfeit if he or she decides not to assume the mortgage at the end of 38 months.

"We've also relaxed credit requirements," said David Siegel program manager.

" This program is available for people who wouldn't be able to come up with the down payment. If they were to go out and get a comparable mortgage, they would have to get a much higher rate," Siegel added.

Published: October 27, 2000

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.