Eric Richardson [Flickr]

A kitchen inside the Rowan Lofts, which developer Downtown Properties hopes will soon be eligible for FHA insured loans.

DOWNTOWN LOS ANGELES — A small change in the definition of live/work units that could have a big impact for Downtown's real estate sales moved one step closer on Tuesday as the City Council's Planning committee instructed the City Attorney's office to prepare the ordinance.

Supporters say that redefining live/work as primarily residential will bring the ordinance more in line with how the units are actually being used, and will promote home ownership by allowing buyers to access highly-attractive federally insured loans.

Michael Cohn of Bank of America Home Loans urged the committee to move quickly. "There is a certain point of urgency here," he told the committee. "That is, there are a couple of loft projects that are going on right now that are opening up for sale that are going to be wanting to close escrows in the next 30 to 45 days. These guys are dangling on a vine right now."

Councilman Ed Reyes, chair of the Planning committee, shared that he had received emails from artists concerned that the change would affect their ability to work. Reyes asked that a meeting be set up with the arts community before the item goes to Council.

Shiraz Tangi, a land use attorney with Alston + Bird and chair of the Downtown Los Angeles Neighborhood Council's Planning committee, praised the city's effort on this project and the dividends it would pay.

"What the city is essentially doing is leveraging federal money to encourage economic activity in our city," said Tangri. "Given our economic crisis, I think the city really needs to look for these types of creative opportunities to partner with the private sector."

Where condo buyers were previously expected to put only three or four percent down, private loans today typically require 10 - 20% down payments.

"If you're buying a unit for $300,000, kind of our lowest-priced one bedroom unit, you've got to come up with $60,000 down, plus closing costs and everything else," Bill Stephenson of Downtown Properties explained to blogdowntown after City Planning Commission approved the item in July. "All of a sudden you need roughly $70,000, then you've got to move in, so you probably need roughly $80,000 in cash."

In contrast, FHA insured loans allow just a 3% down payment on loans up to $625,000. That means just $10,000 cash, a much more accessible sum.

The ordinance change must next go to City Attorney's office for final language before being sent to the full City Council. Once passed, existing buildings would need to resubmit building plans before falling under the new definition.