City Second Loan Program

Click here for the Participating Lender List 

PROGRAM OVERVIEW

The Mayor's Office of Housing and Community Development offers financial assistance in the form of loans to eligible first-time homebuyers with no interest and deferred payment. The repayment amount will be the principal balance plus a share of appreciation in the value of the property at the time of resale.  The City loan is in second position on title after the first mortgage and can be repaid at any time without penalty.

Eligible Properties
Property Size Requirements
Applicant Eligibility
Maximum Loan Amount
Loan Terms
Capital Improvement Policy
Grant of Right of First Refusal
Owner Occupancy Requirements
Application Process
Review and Processing
Loan Documents
Info for Participating Lenders

ELIGIBLE PROPERTIES

The City 2nd loan is available only on the purchase of units located in the following developments:

PROPERTY SIZE REQUIREMENTS

The size of a household must be compatible with the size of the unit being purchased.  A minimum of one person per bedroom is required i.e. a single person may purchase a studio or a one bedroom unit; a two-person household may purchase a two bedroom unit; a three person household may purchase a three bedroom unit, etc...

APPLICANT ELIGIBILITY

First-Time Homebuyer: A qualified household of which no member has owned any interest in a primary residence during last three-year period.

Meet Income Limits: Household income cannot exceed 120% of the area median income (AMI) for the San Francisco Metropolitan Statistical Area as established by the U.S. Department of Housing and Urban Development (HUD), adjusted by household size.

• The combined income of all household members who will be living in the property must be included in the determination of income. The combined household's income must be projected as an annual income. It should be assumed that the current income would continue for the next 12 months, unless there is verifiable evidence to the contrary.
• Household income requirements will include all income of persons 18 years or older who will be living in the property. Maximum loan amounts are tied to the houseld income category.

The following is the maximum income limits as of January 1, 2013:

The above amounts represent the current figures subject to an annual adjustment based on HUD AMI limits.

All applicants must be able to provide the City with three current and consecutive paystubs (or equivalent for self-employed), three completed recent year's federal tax returns and corresponding W-2 forms, three months of bank statements along with a completed City Second Loan Application. All loan applications must have a ratified purchase agreement before applying for this loan.

Minimum Downpayment: The Borrower must contribute a minimum of five percent (5%) of their own funds towards the purchase of the property. All applicants must have sufficient funds to meet the required downpayment, closing costs, necessary reserves, and sufficient income to meet the monthly mortgage payments, property tax, homeowner insurance and association dues.

Liquid Asset/Reserve Limitation: The combined household liquid assets after purchase of the property cannot exceed $25,000. Liquid Assets includes all sources of monies from savings, checking accounts and investments held by an member of the Borrower's household including minors and any other funds available for liquidation to purchase the property. Liquid Assets DO NOT include funds held in pension accounts, retirement funds, 401(K) plans or similar assets which are not available for liquidation without substantial financial penalty to the Borrower.

Homebuyer Education Requirement: All Borrowers are required to complete the first-time homebuyer education course offered through one of MOHCD's five approved housing counseling agencies. A certificate of completion of the course must be included with the application package. For a schedule of homebuyer education courses, Borrowers should call or visit the housing counseling agency's websites: http://sf-moh.org/index.aspx?page=289 or posted on www.homeownershipsf.org. Certifications must have been issued within the last 6 months from the date of the application for downpayment assistance loan.

First-time Homebuyer Education Certificate is required for all City Down Payment Assistance Loan Programs.

Eligible Household Members: To be considered a member of a household, a person must either be 1) on the title and loan of the property or, 2) claimed as a dependent on the tax returns of the household members who will appear on the title and City 2nd loan.

First Mortgage: All City Loan approvals are made in conjunction with a first loan commitment from a bank or mortgage lender. The first loan must be the maximum amount for which the buyer is able to qualify. The loan must be fixed rate, 30 year, fully amortizing. No interest only, stated income, option ARM, balloon or negative amortization payment options loans are allowed.

Maximum Combined Loan-To-Value-Ratio (CLTV): The CLTV cannot exceed 95.00% of the purchase price, which includes the first mortgage, the City 2nd loan and any other borrowed subordinate finance (CHDAP, WISH, etc...)

Debt-to-Income Ratio: Applicants monthly housing debt, including property taxes, property insurance, and if applicable mortgage insurance and homeowner’s association dues cannot be less than 28% of the household’s gross income. The ratio of monthly housing costs, plus all other household monthly debt (including credit cards, car payments, etc.) should not exceed 45% of the household’s gross income. However, the back end ratio cannot exceed more than 5% of the front end ratio. (For example, if the front end ratio is 28%, then the back end ratio cannot exceed 33%.

MAXIMUM LOAN AMOUNT

The maximum City loan is up to $100,000 or 20% of the purchase price, whichever is less. The loan amount will be determined based on the applicant's income, assets, size of household and debt to income ratio. All loans are subject to available funds.

CITY 2nd LOAN TERMS:

1. Loan Terms: The City 2nd loan will be deferred for 40 years at zero percent interest and has no monthly payments. The principal balance amount plus a share of the appreciation should become due at the end of the term or when the Borrower sells, rents or there is a title transfer of the property. The gross appreciation is calculated by subtracting the original sales price from the current sales price or the current appraised market value. The share of appreciation is computed as a ratio of the City loan amount to the purchase price, that is, if the loan amount equals 20% of the purchase price, the share appreciation is 20%.
2. Prepayment Penalty: There is no prepayment penalty to pay back the loan prior to the due date.  However, the repayment amount must be paid in full.
3. Assumable/Transferable: The City loan is not assumable or transferable.  The loan must be paid in full upon sale or title transfer of the property.
4. Payoff Requests- MOH needs the following information for payoff requests:
   1) A written Payoff Request from borrower or a signed consent from borrower(s), if an individual other than the original borrower(s) is making the payoff request.
   2) A current fair market appraisal report (appraisal report should be no more than 90 days old at the time of request for payoff).
5. Refinance/Subordination: The City loan can be subordinated to the refinancing of the existing first mortgage for lower interest rates and better loan terms with no cash equity out of the property. If the refinance meets the City subordination requirements, the City loan will subordinate to the new first mortgage.  All borrowers must work with loan officers or lenders on our list of participating lenders for refinance. This ensures awareness of the full restrictions on the property and expedites the request process.

CAPITAL IMPROVEMENT POLICY

Documentation Requirements for eligible capital improvements on the property. See capital improvements policy for specific information on documenting and submitting this information to MOH.

GRANT OF RIGHT OF FIRST REFUSAL ("GRANT")

Properties under this program can be sold at the market price. There are no price restrictions on the properties. While the City maintains a "Right of First Refusal," owners or listing agents of these properties must notify the city prior to putting the properties on the market and the available unit must be listed on the MOHCD website. The City maintains the option to purchase the property or assign such right to the qualified buyer on the same terms and price offered by a bona fide purchaser within the Right of First Refusal period that is stated in the seller's Grant, after the purchase agreement is ratified.

When a property is on the market for sale, the buyer should contact the listing agent or the owner directly. For a list of available units for sale, please visit our web site for current homeownership listings. These properties are privately owned homes and the City's role is to monitor the sale and assist the perspective eligible buyer to purchase these properties.

If the new purchaser is a qualified buyer and needs the City loan: If the property is sold to a buyer that meets the City’s second loan requirements and would like to apply for the City Second Loan program, the City will permit the buyer to purchase the property by a) waiving its right of first refusal from the seller, and b) requiring the new purchaser to grant the City a new right of first refusal. In order for City to determine the buyer qualifications, the buyer will need to submit the City 2nd loan Application package along with all the attachments (application forms can be download from our website) and submit 3 year tax returns and W-2 Forms; three month bank statements; three most recent and consecutive paystubs; a copy of the ratified purchase agreement and a copy of the preliminary title report (use City Second Loan Transmittal Form as checklist).

If the new purchaser is a qualified buyer and does not need the City Loan: If the property is sold to a buyer that meet the City’s second loan requirements but does not need the City Second Loan, the City will permit the buyer to purchase the property by 1) waiving its right of first refusal from the seller and 2) requiring the new purchaser to grant the City a new right of first refusal. In order for us to determine the buyer qualifications, the buyer will need to submit the City 2nd Loan Application Form (application forms can be download from our website ) and submit 3 year tax returns and W-2 Forms; three month bank statements; three most recent and consecutive paystubs; a copy of the ratified purchase agreement and a copy of the preliminary title report.

If the new purchaser is not a qualified buyer: the City will review its pool of interested first time homebuyers to see whether a qualified purchaser can be found within the time period to exercise the Right of First Refusal. If a buyer is found, the qualified purchaser will prepare an offer which matches the offer from the non-qualified buyer, and deliver it to the seller or the listing agent. At the same time, the City will assign its right of first refusal to the new purchaser, who will exercise it by notice to the seller or the listing agent. If City can’t find an eligible purchaser at the end of term, City will prepare a new grant of right of first refusal for the new buyer to sign. The City has the discretion to shorten the term based on review of the pool of qualified purchasers.

OWNER OCCUPANCY REQUIREMENTS

• A borrower must occupy the purchased property as its primary residence within 60 days after close of escrow
• Properties that have received City loan funding must remain owner occupied throughout the term of the loan
• Compliance monitoring may be performed and documented proof of occupancy required at intervals determined by the Mayor's Office of Housing and Community Development.

APPLICATION PROCESS

• The borrower must complete the first-time homebuyer education course through one of MOHCD’s 5 approved housing counseling agencies. A certificate of completion of homebuyer education must be included with the application package.
• Borrower must go to one of the participating lenders to get pre-approval or pre-qualification.
• Find out the maximum first mortgage for which you can qualify, combined with your own downpayment and the City 2nd loan amount you can qualify, that is the maximum purchase price you can afford. The lender should be able to help you make a good estimate of how much property you will be eligible to buy with those combined resources.
• Find a property, enter a purchase agreement.
• Once you have a ratified purchase agreement, go back to the lender whom you are working with and submit to them the following documents:
  1. City 2nd Loan application  (Please note forms will be updated on June 28, 2013 reflecting changes effective July 1st, 2013) (Revised 1/2013)
  2. Complete set of past 3 years Federal income tax returns (included all schedules, signed and dated) and W-2 forms
  3. 3 current and consecutive pay stubs with year-to-date (YTD)
  4. For self-employed borrowers, provide a current profit and loss statement (signed and dated) and sign and notarize a Self-Employed Affidavit
  5. Unemployed borrower or co-borrower must sign and notarize an Unemployed Affidavit
  6. Income Tax Affidavit (if applicable)
  7. First Time Homebuyer Affidavit
  8. Homebuyer Education Certificate
  9. Last 3 months bank statement for checking, savings & other pertinent investment accounts
  10. Ratified Purchase Agreement
  11. Gift letter (if applicable)
  12. IRS form 4506 (download this form from IRS website: http://www.irs.gov/pub/irs-pdf/f4506t.pdf?portlet=3)
  13. General Release and Waiver of Liability
  14. $522 (non -refundable) Application Fee. $627 if applying MCC together with City 2nd loan (must be a Cashier’s Check payable to the City and County of San Francisco)

Lender will submit the City 2nd Loan application package to the City and provide the following information along with the application:

• Copy of Final Mortgage Loan Application (Form 1003), signed and dated by borrower(s)
• Underwriting Summary (Form1008)
• Approval or commitment letter from the Lender
• A copy of the borrower’s credit report (including credit score)
• A copy of final Good Faith Estimate (GFE) or Estimated Settlement Statement (HUD-1)
• Fair Market Appraisal
• Preliminary title report

A letter of approval or denial will be emailed to the borrower and lender within 7 -10 working days of receipt a complete package from the lender.

REVIEW AND PROCESSING

• MOHCD receives a complete and bound application in a legal size manila folder with two fasteners. (application follows instructions suggested on Transmittal Form
• MOHCD will email an approval or denial letter to the lender within 10-15 working days of receipt of a complete package. Incomplete packages will be returned without review.
• Email notice includes draft loan documents and a request for buyer(s) to sign & date a commitment letter, which must be returned to the City within 5 working days.
• After MOHCD receives the signed commitment letter back from the borrowers:
  • MOHCD will email escrow instructions and closing documents to the title company.
  • 7 working days funding period will begin.
  • Funding as specified in the commitment letter will be placed on reserve for a period of 45 days from date of the commitment. If for any reason, escrow cannot close within the commitment period, please notify the Mayor’s Office of Housing and Community Development immediately or the loan will be void.
  • Funding will be wired to the escrow account after MOHCD receives and reviews all closing documents by 11 a.m. We require 4 working days for wire transfer.

LOAN DOCUMENTS

• Grant of Right of First Refusal ("Grant") (pdf): All properties under this program are required to sign a "Grant of Right of First Refusal". The City maintains the option to purchase the property or assign such right to the qualified buyer on the same terms and price offered by a bona fide purchaser within the Right of First Refusal period, after the purchase agreement is ratified.
• City Deed of Trust (pdf): The City Deed secures the loan against the title of the property. The City loan will subordinate to the first mortgage.
• City Note (pdf): The City Note contains an acceleration clause, which will call the entire loan due and payable at the sale, rental and title transfer of the property. The City Note also outlines the terms of repayment.

INFORMATION FOR PARTICIPATING LENDERS

Mortgage Loan Officers (MLO) or mortgage brokers who would like to become participating lenders for MOHCD's homeownership programs, including DALP, MCC, PIC and TND must complete the required training and pay the required fee. Each individual MLO or mortgage broker must complete the training every year. All participating loan agents must provide their NMLS ID# to MOH and sign the Lender Participation Agreement.

BMR Lender Training is not currently available. Lenders who wish to participate with the BMR must agree and understand that the City will place a second lien against the BMR property, which is the difference between the fair market value and the BMR sales price, referred to as BMR lien. The City will require Title Insurance for the BMR lien. The lender also understands that the restrictions in an Inclusionary Housing BMR unit will survive foreclosure. To inquire about BMR lender participation, please contact our office at (415) 701-5500 and ask for the BMR program staff.

Lender Training for DALP & MCC is now online. To register and take the training, please visit:
Online Lender Training for DALP & MCC

Click for List of DALP/MCC Participating Lenders

Click for List of Homebuyer Education Counseling Agencies

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