This is the second of a four-part series examining the challenges people face when seeking a home in Chugiak-Eagle River, where real estate prices continue to escalate. Last week's story focused on the cost of home ownership and how it has changed over the past 10 years. This week's installment features loan programs and what it takes to qualify for a home. The third part will focus on affordable housing options including mobile homes and renting vs. buying. The final part will focus on the outlook of housing in the area: When will the bubble burst?
For the first time in at least 10 years, a household with the median income in Chugiak-Eagle River would not qualify to buy the average-priced home.
But that hurdle has not stopped some people from realizing their "American Dream."
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Creative financing Ð including closing cost credits as advertised on this townhouse in the Bainbridge Subdivision Ð is one way local residents are able to afford homes as prices continue to rise.
STAR PHOTO BY GREG DART
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According to data derived from the U.S. Census, the average household in Chugiak-Eagle River brings in about $80,000 annually. Mortgage processors say a buyer with that income who puts 10 percent down and carries a monthly debt load of $700 and a credit score around 700 would qualify under Department of Housing and Urban Development affordability guidelines to buy a house costing no more than $270,000. The average home price in Chugiak-Eagle River surged above that threshold in the past year.
"The biggest factors for purchasing a home are debts, credit and income," said Jeanne Mee, branch manager of Residential Mortgage in Eagle River. "With the prices of homes escalating, people can afford less than they once could."
That challenge has not thwarted some people.
"We are not processing any fewer loans," said Aaron Gray, senior loan originator for HomeState Mortgage Company in Eagle River. "People are just finding new ways to stretch their buying power."
Having multiple earners in the family is a common solution.
"What we have now are a lot of two-income families, and not always by choice," said Susan Gorski, executive director of the Chugiak-Eagle River Chamber of Commerce. "These are people who know they need two incomes if they are going to buy a home."
Gray said a majority of the families he works with either have two wage earners or are part of the military. Because military members receive a substantial tax-free housing allowance, they are often able to afford a home, said Gray.
Mee said the days are gone when first-time homebuyers were able to bring in 20 percent of the purchase price of a house and get a conventional 15- or 30-year loan.
Popular loan programs that have popped up over the last five years and are gaining popularity in hot housing markets such as Chugiak-Eagle River's include interest-only loans, first and second mortgages, no down payment and adjustable rate mortgages.
Alaska Housing Finance Corporation is toying with the idea of offering 40-year mortgages that are due in full after 30 years. That would allow people to make a smaller monthly payment for a more expensive house. AHFC spokeswoman Sherrie Simmonds said the new mortgages were to be announced in the middle of this month, but that announcement has been delayed until all the kinks are worked out of the program.
"Even with rates as low as they are right now, buying power is being decreased substantially by rising house prices," said Gray.
Both Mee and Gray cautioned that many of the people who are buying homes with interest-only or adjustable-rate mortgages are gambling that prices would continue to rise.
"Basically, these programs let people buy more house than they can afford," said Gray. "They are betting that housing prices will continue to increase and that is how they will build equity. It doesn't always work that way."
Merry Braham, special events director at the Chugiak-Eagle River Chamber of Commerce, said her daughter realized that if she wanted to buy a home she would have to either go somewhere other than Chugiak-Eagle River or participate in one of the higher risk loan programs.
Instead, Braham said she and her husband fronted some money to their daughter.
"More or less she got her inheritance before we died," said Braham. "It was the only way she could afford it."
But others can't afford their purchases. Although specific Chugiak-Eagle River numbers are not available, Alaska has had one of the 20 highest state foreclosures rates each month so far in 2005. In May, Alaska had the 11th highest rate, according to RealtyTrac, a nationwide foreclosure database.
"You have people in this area getting into homes that they can't afford, and then you start to see real problems," said Gray.
Reach the reporter at greg.dart@alaskastar.com.
