Buying a Home, When You Think You Can’t Afford One.

The discipline paid off. In January, Frizzell bought a two-bedroom condo in Käne’ohe for $180,000-about six times his annual income-thanks to a lender who let him borrow 95 percent of the entire value of his home, with just $10,000 down.

“I’m a simple person,” says Frizzell, 29. “I don’t buy new clothes, I drive an ’89 Toyota pickup truck, paid for. I don’t go to movies or dinner all the time. I paddle, surf. If I had a high-maintenance lifestyle, there’s no way I’d be able to do this.”

Frizzell’s purchase personifies the new, ever-optimistic economics of home buying in Hawai’i. Though it seems counterintuitive, with home prices climbing faster than you can say escrow, homes today are more affordable than they were 10, even 20 years ago.

How so? Herb Conley, managing director of Coldwell Banker Pacific Properties, explains that the median household income for a four-person family in Hawai’i is about $75,000. With the current 30-year mortgage rate at about 6 percent and a 20 percent down payment, such a family could easily qualify to buy a home for $496,291, which is more than the median single-family-home price of $451,000 in the second quarter of this year. In 1990, however, the median household income was $50,000 and the average mortgage rate was about 10 percent. Such a family could buy a home for $223,124, far below that year’s the median single-family-home price of $352,000.

Even as mortgage rates start inching up, numerous financing options still allow many more people to afford homes who didn’t think it was possible.

“When I first got into the business in the ’70s, there were three types of loans: a 30-year conventional loan, an FHA loan and a VA loan,” says Conley. “Now there are hundreds of them. As long as you have income, some savings and you want to buy, there’s going to be a plan out there that will enable you to get something.”

For instance, if you can’t afford a 20 percent down payment, you can take out dual mortgages-one for 80 percent of the price and a second for 20 percent, usually at a higher interest rate. Frizzell did some something similar. He put 5 percent down and took on one mortgage for $144,000 at about 5.5 percent and a second for $27,000 at 7 percent. Both are fixed 30-year rates. His mortgage payments, combined with his condo’s maintenance, add up to about $1,300 a month, or about his half his monthly income, he says.

“Not a lot of first-time homebuyers have the 20 percent for a down payment, unless they’ve really saved up or have parents help out,” says Matt Lynch, a loan officer with Irwin Mortgage, which specializes in first-time buyers. “This way, they can afford mortgage insurance, and they get the tax benefits on two mortgages.”

There are other alternatives. You can choose an Adjustable Rate Mortgage, if you expect that your income, as well as the equity in your home, will grow. If you have a poor credit rating or low income, you can qualify for a subprime mortgage at a higher interest rate. If your credit is good but your income is inconsistent (for example, much of your earnings are in cash because you rely on tips or are self-employed), you could get a no-document loan, where your income will not be verified. You can even take out a 103 percent or a 107 percent loan, to cover closing costs as well as the home price.

But with lenders so willing to loan money, it’s also easier for people to take on more than they can handle. “What a bank can qualify you for and what you can afford is not necessarily gonna be the same thing,” says Lynch. “You know your finances better than anyone else, or, if you don’t, you should. You determine what is and isn’t affordable to you.”

Homeowners should dedicate at most between 28 percent and 35 percent of their gross income to mortgage payments, says Wendy Burkholder, executive director of Consumer Credit Counseling Services of Hawai’i. Any more could leave them vulnerable in a financial emergency, such as losing a job or visiting the ER.

“I’m also concerned about people who just squeaked by in qualifying for their loans,” Burkholder says. “As the feds increase the prime rate, payments will go up for people who got an Adjustable Rate Mortgage or a conventional mortgage and an equity line with an adjustable rate. It will also impact their credit-card debts, because those lenders also tie their rates to the prime. If they haven’t budgeted for that, they can be in real trouble.”

Obvious as it sounds, homebuyers need to do their homework. Frizzell, for example, had established exceptional credit. He even obtained his real estate license to educate himself about the process. He found a good real estate agent and checked out homes for four months before putting in an offer for his Käne’ohe apartment.

“Sometimes I feel like I’m in over my head with the mortgage payments and I get nervous, but I don’t regret it,” says Frizzell. “I’m definitely glad I jumped in when I did and locked in a good rate. Conservatively, I think my place has appreciated thirty grand since February. That makes me feel like I made the right move.”