In 2002, James and Michelle Rigdon purchased a new $427,000 Gilroy, CA home with a conventional $282,500 first mortgage, a $25,000 deferred payment California Housing Finance Agency second, an $85,000 third from South (Santa Clara) County Housing, a $6,500 fourth from the Housing Trust of Santa Clara County and a $6,000 grant from a non-profit agency.
That's what it's come to in Silicon Valley, CA an area where single family home prices have fallen nearly $40,000 in recent months but the median price of homes remain higher than a half million dollars.
Instead of the traditional first and second mortgage to finance a home and cover the down payment, buyers are piling on more mortgages to acquire the American Dream.
"We can't just get a first loan anymore. You have to go and find other loans. We spend a lot of time trying to guide people to the right place so they can get first, seconds, thirds and fourths," said Tracy Cunningham, the Single-Family Program Manager for the Housing Trust of Santa Clara County.
But it's not just California. New England, some Northeast metros, Denver and other areas have been socked with high home prices that often make creative financing with multiple loans the only way to buy.
"I'm not sure I'd advise someone in Boston that it is time to leave town, but I am certainly advising buyers to sit this market out. Boston has been through this real estate cycle before, and a lot of people will regret buying in the current real estate bubble," said Bill Wendel, of the Real Estate Cafe in Lincoln, MA.
Others say, while real estate isn't without its risks, that risk diminishes over time and buying, even in an expensive market, more often than not, makes sound financial sense.
The Office of Federal Housing Enterprise Oversight's Second Quarter House Price Index says the nation's housing market has enjoyed a nearly 39 percent rate of home price appreciation since 1997, with more the half the states and the District of Columbia enjoying a 5 percent growth in price appreciation during past year.
The federal overseer of Fannie Mae and Freddie Mac says any housing market downturn isn't likely to fall as far as prices have risen and over time, banking on real estate is not a risky investment.
It's just tough getting through the door in some areas and consumers need to give it a good hard shove to get it open.
"Call the housing department in your city. Many cities offer great deals for first-time home buyers. Zero-interest loans or loans with no payments or even loans that do not have to be repaid at all if you stay in the house for a time. Different programs are offered at different times depending on the funds available," said Joette Joseph, branch manager of VP Alliance Title Co. in San Jose, CA.
Grants, for example, have been so overlooked, the national non-profit housing grant industry recently formed a trade group, the Homeownership Alliance of Nonprofit Downpayment Providers (HAND) to boost the visibility of grants that average $6,000 to $15,000 nationwide per home buyer.
"I've been talking to professors of urban affairs and almost no one has heard of this industry. It's a five-year old industry and there are about 22 agencies. We are doing it with private capital. It is a gift to a buyer. The buyer doesn't repay the money. That's the main appeal," said Jon Cottin, the new association's executive director.
The same lack of knowledge often exists about special mortgages and loan programs available from city, county and state housing offices, as well as private agencies that don't always have the budgets to advertise like private lenders.
"Find a loan broker who frequently works with first time buyers. They often have the inside scoop on whatever is currently available. There are many programs available if you do a little research. Be sure to get preapproved before you start shopping for a home," said Joseph.
Many lenders participate in the federal Mortgage Credit Certificate (MCC) program typically administered on the county level in most states.
With an MCC, up to 20 percent of the annual mortgage interest paid to the lender is refunded to the home owner as a federal tax credit. Homeowners who paid $10,000 in interest, for example, would receive a tax credit of $2,000. The remaining 80 percent of the interest -- $8,000 -- is taken as a typical mortgage interest deduction.
Because the program offers a tax credit that is subtracted from taxes due (rather than a deduction the reduces your taxable income) home owners can see the benefit immediately by adjusting their W-4's exemption status. Or home owners can add the $125 a month to cash available for a mortgage payment. In many cases, lenders will qualify borrowers based on the extra monthly cash flow, enabling them to qualify for a home that might have been out of their reach without the MCC.
Along with grants, government assistance, MCCs and private lender programs, builders also offer special financial keys to home ownership.
Some jurisdictions mandate a below market rate housing program that requires builders, in some cases, to set aside a small portion of newly developed homes for low and moderate-income households. Builders can meet the requirements with lowered sale prices, special loan assistance and by other means.
Savvy brokers and lenders can help steer borrowers to all these special programs, but it's often up to the borrower to seek out the programs. Finding one program often leads borrowers to others.
"Don't be afraid to have your buyer agent call a builder directly and ask for a deal. Sometimes builders have remnant lots which they will sell at a bargain. Sometimes they will build a house on a 'cheap' lot and sell it for a discount from the normal price in that neighborhood. Maybe the lot has a drainage easement or some other weakness that has made it be the last house in a built out subdivision, but you get the deal because you asked," said Dane Hahn, broker-owner of Exit 11 Real Estate in Stratham, NH.