City may raise roof on first-time home loans

Alicia Robinson

The soaring price of housing in the city has driven the Costa Mesa

City Council to consider increasing six-fold the amount of money it

offers to help qualified first-time home buyers, as well as

increasing the cap on home purchase prices.

Using state funds, the city now offers first-time buyers up to

$40,000 toward the cost of a home. On Tuesday the council, acting

under the title of Redevelopment Agency, will discuss increasing that

subsidy to $240,000.

The agency also will look at raising the price cap from $515,000

to $608,000 on homes that can be purchased through the program.

About four or five years ago, the city was making 10 to 12 loans a year through the first-time home buyer program, said Alma Penalosa, a

management analyst with Costa Mesa’s housing and community

development department.

“When the housing prices spiked, we saw a big decrease,” she said.

Last year the city made four loans, and this year it has only made

one.

The program was meant to fill a gap for people who fit certain

criteria: they couldn’t make more than 120% of the area median

income, and they had to put down 3% of the home price themselves. The

median income for a family of four in Orange County is now $75,700.

But the gap between prospective buyers’ means and the cost of the

homes got so big that the city’s loans were useless.

All over Southern California, cities with home buyer loan programs

are seeing the same problem, said Kathleen Head, a principal at

Keyser Marston, a consultant working with Costa Mesa on its program.

“Nobody can make them work,” she said. “There’s just a lot of

first-time home-buyer programs that aren’t making any loans.”

Here’s why: over the last five years in Orange County, workers’

median incomes increased by 11% while the median home price went up

260%, Head said.

Costa Mesa also may make other changes to its program to help home

buyers get into a house. Currently, the combined total of city

assistance plus the buyer’s down payment can’t exceed 20% of the home

price. That cap might be eliminated.

Also, the city funding is now a loan with no payments required for

10 years, after which the buyer has 20 years to repay the loan plus

5% interest. That requirement could be changed so that, for up to 45

years, the buyer would pay the city nothing until he or she sells the

house. At that time, the buyer would repay the loan and a percentage

of the equity based on how much was borrowed.

The upshot of the changes is the city will technically be able to

make fewer loans because the amount of each loan is so much higher.

The city generally gets between $700,000 and $1 million in state

funding each year to help first-time home buyers, Penalosa said.

But the higher funding limits may mean the money that’s available

can actually be used. Getting people into home ownership is a

priority for the City Council for several reasons, Councilman Eric

Bever said.

“With owner occupancy, you have pride of ownership. The properties

are tended better than if you have off-site owners,” he said.

With housing costs not likely to drop soon, other cities may

follow Costa Mesa’s lead and consider offering first-time buyers more

money.

Orange County’s Housing and Community Services department offers

first-time home-buyer assistance to people in unincorporated areas

and 15 cities, and the county has the same $40,000 assistance cap

that Costa Mesa now does. Between 2000 and 2003, the county made six

loans.

“I think we’re all in the middle of responding to the housing

market and the appreciating pricing in both rental and for-sale

[housing],” said Mario Turner, housing development administrator for

Orange County.

“My sense is [increasing subsidies is] going to be a trend to

address the growing affordability gap.”

For more information on Costa Mesa’s first-time home-buyer

assistance program, call (714)754-5635 or visit

https://www.cmredevelopment.org online.