In the span of a couple of weeks earlier this month, Tyler Nelson went from renting, to thinking he was a homeowner, back to renter, and finally, as of Friday, a homeowner again.

He hopes.

A few months ago, the North Dakota native started researching a home purchase - even after some friends and colleagues told him it would be virtually impossible for a 24-year-old to buy in pricey San Francisco.

An electrical engineer, Nelson found he enjoyed learning about tax laws and mortgages - that is, until earlier this month, when the application and approval process became a lot more complicated.

Nelson, like many other would-be home buyers in the Bay Area, got caught in the vise of tightening credit standards that have quashed many consumers’ plans to buy or refinance. Nelson is scheduled to close the deal on his new home today - barring any final hurdles. So far, there have been many.

Time is important, because Nelson has figured out a minimum time frame for owning the property.

“I have a good job, I love San Francisco, and I was planning on having it for three years - but I realize now it’s going to be a five-year commitment to make money.”

Using what’s known as a fractional mortgage that allows owners of individual tenancy-in-common units - also known as TICs- to have their own home loans, Nelson in July made a full-price offer on a three-bedroom TIC for $565,000 in an early 1900s building in San Francisco’s Hayes Valley neighborhood.

Nelson was feeling quite confident. With a strong 764 credit score, his engineering position and 10 percent down payment - 5 percent from his savings and retirement and 5 percent from a friend-investor who agreed to share some portion of the equity gains with him - he figured that even a jumbo loan (anything over $417,000) was attainable.

He also planned to rent out two of the bedrooms for $950 apiece, which would help whittle down the monthly payments.

Nelson, a clean-cut young guy with a face full of freckles, said many of his friends in North Dakota are paying about one-third of what he’s paying - and they’re getting large houses with large lots. Even at these high prices, however, Nelson says he’s drawn to the idea that a home is something real and of real value (and he did real research - including reviewing the minutes of past TIC board meetings).

“It’s not like a regular investment - it’s something you can put your hands on, and you can use your hands to make it worth more.”

At first, Nelson’s mortgage broker told him he would need a co-signer because he was putting down only 10 percent. So, Nelson’s parents, who still live in Bismarck, N.D., agreed. Hurdle 1 cleared.

But then, with more banks getting skittish about large loan amounts, Nelson said the lender asked him to come up with another 10 percent toward the down payment or to bring in a few more thousand dollars per month. Realizing the market had softened, Nelson asked the seller to provide some financing. She agreed to finance the remaining half of the down payment. Hurdle 2 cleared.

The lender then pulled back again, saying Nelson needed to dramatically lower his debt-to-income ratio - even with a co-signer. The bank refused to include the rental income in its calculations. At this point, the loan was off, and Nelson was back to renting.

Nelson’s Realtor, Valerie Salvetti, said these types of cases are prompting more real estate agents to push back escrow.

“It’s scary - when you’re waiting for (the lender) to fund the loan, and they want these extra conditions,” Salvetti said.

Eventually, Nelson’s mortgage broker talked to the bank himself and convinced it to allow the rental income - the loan is back on. Hurdle 3 cleared.

But he wasn’t home yet. As Nelson was withdrawing the money for the down payment, the lender concluded that Nelson’s parents - a plumbing distributor and benefits salesperson - could not be on the loan because they do not live in California. So, Nelson was able to persuade his friend-investor to put her name on the note.

The deal is back on, and Nelson is feeling confident once again.

“I’m at the point where it’s going to happen - my room is already rented, so I don’t really have a place to stay if it doesn’t go through,” he said, laughing.

Nelson said those friends who questioned whether he would be able to buy in San Francisco are now asking him for advice.

“I think it was an inspiration for some people who were just waiting and making excuses to not buy,” he said.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/27/MNBIRM204.DTL&hw=real+estate&sn=004&sc=756