Looking for Houses Under $100,000 : Many Stretching Their Way Into a First Home

SAN DIEGO — When interest rates began dropping late last year, David and Sandy Toyne decided they could finally afford to buy their first house.

“We felt like we were throwing away our money by paying rent,” said David Toyne. “Also, we wanted a house to have a yard for our 20-month-old son Nicholas.”

After looking at several homes, the young couple, both 24, purchased a 15-year-old, two-bedroom, one-bath house for $93,000 in Mira Mesa.

The down payment and closing costs totaled $5,000, and they qualified for a $90,000 Federal Housing Administration insured mortgage--the maximum amount available in San Diego.

Despite a recent uptick, the general decline in interest rates has motivated many renters to enter the home-buying market.

The major problem is finding an affordable house. And buyers must come up with a down payment and also be able to afford the monthly mortgage payments.

With these two constraints, most first-time buyers are purchasing homes or condominiums for $100,000 or less.

But where are they finding these homes and condominiums?

New single-family homes priced in the $100,000-range are primarily in the county’s outlying areas--in Escondido, in South Bay near the Mexican border and in cities like Santee and El Cajon to the east.

Some resale single-family homes for less than $100,000 are also available in those areas, as well as neighborhoods closer to downtown San Diego, such as North Park and Golden Hill. And condominiums and town houses for the first-time buyer are available in sections such as Mission Valley, Clairemont, Del Mar Heights and Penasquitos.

Like the Toynes--Sandy works as a technical librarian for the federal government and David manages a warehouse--most first-time buyers need two-incomes to afford the monthly mortgage payment.

Also like the Toynes, most would-be buyers get part of the down payment from family or friends. In addition, most first-time buyers use FHA financing, which only loans to a maximum of $90,000, below the average price of homes in San Diego.

Veterans Administration-insured mortgages also are popular because there is no down payment required up to $110,000. However, many other restrictions apply.

Roberto and Alma Sanchez, who purchased a new five-bedroom home in the South Bay for $110,000, needed $20,000 plus closing costs so that they could get an FHA-insured mortgage. Some of the funds came from their savings, and the rest was borrowed from Roberto’s mother and uncle.

“A home is the best investment you can have,” said Roberto, 33, a construction worker. Alma, 33, is a cosmetologist. The family moved into their home in May. The front yard remains unlandscaped and sheets hang in the windows--all signs that fixing up must wait.

At the opposite end of the county--50 miles away in Escondido--Cheryl and Gary Latimer are buying their first home--a $93,900, two-bedroom, two-bath, single-family home they’ll move into this month.

By most standards, the 1,000-square-foot house--built by Native Sun Development and Great American Development--is small, but it is detached with its own backyard and a two-car garage. It has air conditioning, a fireplace, dishwasher and vaulted ceilings in the living room and master bedroom.

The Latimers had saved $5,000 of the $7,000 they needed for the down payment and closing costs. Their parents gave them $2,000 as a gift.

Cheryl Latimer, 24, works as a word processor in Sorrento Valley, and her husband, 21, is a plasterer. Together, they earn $45,000 a year, enough to qualify for the $90,000 mortgage and $920 monthly payments.

“We looked for a house for three months,” Cheryl Latimer said. “We were discouraged by the small backyards. We would find a good house, but it would be in an area we didn’t want to live in. Finally, we found this house. We liked the quality and the location on a cul de sac.”

Although it is more difficult for a single person with one income to buy a first home, many singles are stretching to make home ownership a reality.

Ben Davis, 26, is buying a two-bedroom town house for $100,000 near the University of San Diego. It has a two-car attached garage, fireplace and access to recreational facilities, such as a swimming pool, whirlpool and tennis courts.

Unlike most first-time buyers, Davis does not have an FHA-insured mortgage. The only way he could qualify to purchase his unit was to get a $90,000, 30-year, variable-rate loan with an initial rate of 9%. In comparison, a fixed-rate mortgage from the same lender would have been 10.5%.

After the first year, the interest rate on Davis’ mortgage is tied to the average cost of funds for the savings and loans located in the 11th District--which includes California, Arizona and Nevada.

If rates climb too much, Davis acknowledged that he will likely be unable to afford the payments.

To qualify for the variable-rate mortgage, Davis had to include his overtime pay as a federal government auditor of defense contractors and his part-time salary as an aerobics instructor. He expects to earn about $30,000 this year.

The $10,000 down payment and closing costs are a gift from Davis’s parents “because I put myself through college,” he said.

All of these families have had to stretch to make home ownership a reality.

What is the outlook for other first-time buyers?

“It is going to be more difficult for the first-time buyer,” said Barry Ross, president of Robinhood Homes, which built the Sanchez’s house.

About 40% of Robinhood’s sales are to first-time buyers, and Ross noted that an increasing number of them are borrowing part of the down payment from family and friends. They have less trouble making the monthly payments.

Because of higher land prices and development fees, new-home prices are going to rise even more, he said.

For example, in Otay Mesa--considered one of the least-expensive areas of San Diego County--the cost of building a new home is at least $107,000, without any profit to the builder, according to Ross.

The breakdown is as follows: land, $15,000; off-site improvements, $15,000; school assessments and other fees, $15,000; construction (1,500 square feet at $30 per square foot) $45,000; sales costs, $5,000; financing fees, $12,000.

The picture is not much brighter in resale homes.

“Demand for homes under $100,000 outstrips supply,” said Jill Lemke, a real estate associate with Great Western Real Estate’s Mira Mesa office.

Lemke, who sold the Toynes their house, said that people who wait too long for interest rates to drop may be making a mistake--because a rise in home prices may counter the positive effect of interest rate declines.

“The first-time buyer must have an inner drive,” Lemke said. “The person or couple must say, ‘I want this house and am willing to make the sacrifice.’ With each generation, the first home is a difficult purchase. But it is a wonderful thing. You have a lot of pride because you paid for it.”