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City Second Loan Program

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The City Second Loan Program is available through MOH Approved Participating Lenders Only

Click here for the Participating Lender List 

Effective July 1,  2014

    CSLP Application Fee $544 (non -refundable) Application Fee; $657 if applying MCC together with CSLP


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
Borrower 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:

Development Name 

# of Units 

Size 

Street Location 

Parkview Heights (Potrero Hill)

122 

2-3 bdrms. 

Wisconsin, DeHaro, Claire, Blair & Littlefield Terraces 
Holloway Terrace (Ingleside)

42 

2-3 bdrms. 

Holloway, Faxon and Capitol 
Armancio Ergina (Western Addition)

72

1-3 bdrms.

Scott, Ellis & O'Farrell
Cayuga Terrace (Outer Mission)

13

2-3 bdrms.

Delano at Geneva
Parkview Commons (Haight Ashbury)

114

1-3 bdrms.

Frederick & Carl
101 Valencia (Mission-South of Market)

109

1-3 bdrms.

Valencia, Stevenson & McCoppin
Goodman II (Potrero Hill)

18

1-3 bdrms.

18th Street (BMR Units)
Baycrest Towers (Downtown)

29

Studio, 1 & 2 bdrms.

201 Harrison Street

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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...

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BORROWER 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.

Current Year Maximum Income Limits as of January 1, 2014  (PDF)

Please note:

  • 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 amounts in the chart represent the current figures subject to an annual adjustment based on HUD AMI limits.

All borrower 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.

Asset/Reserve Limitation: The combined household liquid assets after purchase of the property cannot exceed $60,000. Liquid Assets includes all source of monies from savings, checking accounts , gift fund, cash received from settlement or inheritance and investments and properties held by any member of the Borrower’s household including minors and any fund that is 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.

Liquid Asset Restrictions: Prior to purchase, a borrower household may hold no more than $200,000 in liquid assets. This includes all sources of liquid assets and gift funds. After purchase, the maximum liquid assets held by a household must not exceed $60,000.

Eligible Household Member:  Household Size Determination and Requirements - An eligible household member must either be:
1) On title and loan of the property. All spouses or domestic partners must be included in the household and must appear on the application, title and loan for the City 2nd loan.

2) As a dependent on the tax returns - All household members who are under 18 years of age must be the legal dependent of an adult household member. An unborn child will be counted as a household member with verifiable medical documentation. Elderly adult household members may be considered as dependent as long as they are listed as a dependent on the most recent tax return. All income from dependent adults and children must be included in the total household income. Spouses and Domestic Partners are not considered dependents.

Household Size Compatibility:    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. In other words, a single person may purchase a studio or a one-bedroom unit; a two-person household may purchase a two-bedroom unit or a smaller unit if they choose; a three-person household may purchase a three-bedroom unit; and so on. There is no restriction on purchasing a unit that has fewer bedrooms than the household size.

Minimum Down payment: Borrower must contribute minimum of five percent (5%) of the purchase price toward the downpayment of the property. Of the total 5%, 3% must come from the Borrower’s own funds from a verifiable source (held in a financial institution) and 2% can be grant or gift funds. Borrower must have sufficient funds to meet the required down payment plus necessary reserve funds as well as sufficient income to meet the monthly mortgage payments, property tax, homeowner insurance and homeowner association dues. Borrower is limited to a total down payment of 50% towards the purchase including any loan from the City. The borrowers 5% contribution shall be applied as downpayment and not as closing costs.

Post Purchase Reserve Funds: Borrowers using City 2nd loan must have a minimum of three months total monthly housing expenses post purchase. Some Borrower may qualify for first-mortgage financing with fewer than three months reserves. Recognizing that the financial circumstances of each homebuyer are unique and that there may be other factors besides 3 months reserves that reflect the borrower's ability and willingness to repay mortgage loans, the MOHCD may consider 2 months reserves if two or more of the following indicators are present:

a) Proven ability to devote a larger amount of income to housing expenses. The borrower has successfully demonstrated an ability to make mortgage or lease  payments for twelve consecutive months that are equal to or greater than the proposed monthly payments for the housing being purchased;
b) Substantial net worth as demonstrated through non-liquid assets and retirement accounts;
c) FICO credit score greater than 700;
d) Demonstrated potential for increasing his/her earnings;
e) Housing expense will not increase more than five percent over previous housing payments 
 

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 12 months from the date of the application for City 2nd loan.

FINANCING REQUIREMENTS

Primary Financing: Borrowers who apply for a downpayment assistance loan must be able to qualify for a first mortgage from a Participating Lender prior to submitting an application for a City 2nd loan. Borrowers must have sufficient funds to meet the required down payment, and necessary reserves as well as sufficient income to meet the impounded monthly mortgage payments. The primary lender must collect and manage impound accounts for payment of property tax and hazard insurance for the term of the primary loan. Unless pre-approved by MOHCD, the City 2nd loan must be in second position behind the first mortgage.

First Mortgage Requirements: The first mortgage loan must be a fixed rate mortgage, the mortgage payment must be fully amortizing. Loan Type not allowed: reverse mortgage, stated income, ARM – adjustable rate mortgage, reverse mortgage, interest-only, negative amortizing and balloon payments.

Co-Signing: Co-signing for a City 2nd loan by a non-household member is not allowed.

Seller/Realtor/Lender Credits:  Credit funds are allowed for non-recurring loan closing costs. All credits must be used in escrow, no more than $250.00 cash back to borrowers at close of escrow. The amount of non-recurring closing costs cannot exceed 3% of the sale price.

Maximum Loan-to-Value Requirement (CLTV): The maximum CLTV cannot exceed 95% of the purchase price, which includes the first mortgage, City 2nd loan and any other borrowed subordinate financing. The minimum CLTV cannot be less than 50% of the purchase price.

If portion of City 2nd loan will be used towards non-recurring closing costs, the CLTV cannot exceed 98%; the amount of non-recurring closing costs cannot exceed 3% of the purchase price. Borrower must contribute 5% towards the purchase price (3% borrower’s own funds and 2% can be gifts OR 5% in full from borrower).

Debt-to-Income Ratio: Borrower 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 43% of the household’s gross income.

Post Purchase Reserves Funds: Borrowers use City 2nd loan must have a minimum of three months total monthly housing expenses post purchase. Some Borrowers may qualify for first-mortgage financing with fewer than three months reserves. Recognizing that the financial circumstances of each Borrower are unique and that there may be other factors besides 3 months reserves that reflect the borrower's ability and willingness to repay mortgage loans. The MOHCD may consider 2 months reserves if two or more of the following indicators are present:

a) Proven ability to devote a larger amount of income to housing expenses. The borrower has successfully demonstrated an ability to make mortgage or lease payments for twelve consecutive months that are equal to or greater than the proposed monthly payments for the housing being purchased;
b) Substantial net worth as demonstrated through non-liquid assets and retirement accounts;
c) FICO credit score greater than 700;
d) Demonstrated potential for increasing his/her earnings;
e) Housing expense will not increase more than five percent over previous housing payments

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MAXIMUM LOAN AMOUNT

Maximum City 2nd Loan Amount: is up to $200,000 of the purchase price. Qualifying loan amounts are based upon a graduated scale depending on income levels, adjusted by household size, not to exceed 120% median income and debt to income ratio. The maximum loan available per household depends on the household’s income in relationship to the Area Median Income (AMI).

Household Income

100% AMI and under

101%-120% AMI

Loan Limits

Up to $200,000

Up to$140,000

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CITY 2nd LOAN TERMS

  1. Loan Terms: The term of the City 2nd Loan is 40 years. The City 2nd Loan is a no interest, no monthly payment, deferred loan due upon sale, rent, or title transfer of the property. The principal balance amount plus a share of the appreciation should become due at the end of term or when the borrower sells, rents or transfers title on the property. The 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 31% of the purchase price, the share appreciation is 31%. If the borrower receives the City 2nd loan in the amount of $200,000 with the purchase price of $650,000, the share appreciation would be 31%.
  2. $200,000 City 2nd Loan Amount

    =

    31% of share Appreciation

    $650,000 Purchase Price

     

     

  3. Prepayment Penalty: There is no prepayment penalty associated with payment of these loans prior to the due date (sale or rental). However, prepayment must be in full; the loan cannot be partially repaid. If there is a prepayment, the amount due and owing will be determined by an appraisal, at the homeowners own cost, (to determine the amount of appreciation) and approved by the MOHCD Director.
  4. 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.
  5. Payoff Requests: Borrower must submit a written request for payoff. If the borrower wishes to have a third party submit a request for payoff on their behalf, the borrower must submit a signed consent form allowing MOHCD to provide information to the third party. In addition, the requesting borrower must submit at their own cost, a current fair market appraisal report (appraisal report should be no more than 90 days old at the time of request for payoff). Upon receipt the above requested information, MOHCD will generate a payoff statement within 5 – 7 business days.
  6. Refinance/Subordination: The City 2nd loan can be subordinated to the refinancing of the existing first mortgage for a lower interest rate and better loan term. Borrowers are allowed to take up to 3% of the new first mortgage amount as cash out to cover the cost of the refinance. Under no circumstances can the refinance amount be more than the original loan amount. If the refinance meets the City subordination requirements, the City 2nd loan will subordinate to the new first mortgage.
  7. Subordination Requests: Borrowers must work with one of our participating lending officers to refinance their City 2nd loans. For mortgage brokers, the funding lender needs to be approved as well. MOHCD will reject a subordination request for none participating lending officers. Please visit our website for Subordination Document Checklist: located in our website: www.sfmohcd.org
  8. Home Equity Lines of Credit and Home Equity Loans: MOHCD does not allow City 2nd loan borrowers to open Home Equity Lines of Credit and Home Equity Loan. Borrowers who use such programs are in violation of their Program restrictions and will not be allowed by MOHCD to refinance their City 2nd loans. The  City 2nd loan will be due and payable with share of appreciation if household is deemed out of compliance with this policy and all other applicable program policies.
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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.

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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 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 right of first refusal period, 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.

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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.
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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  (revised May, 2014)
    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) and VOE
    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. $530 (non -refundable) Application Fee. $640 if applying MCC together with City 2nd loan (must be a signed Cashier’s Check payable to the City and County of San Francisco) $544 CSLP, $657 MCC & CSLP after July 1, 2014

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

MOHCD will email a letter of approval or denial to the borrower and lender within 10-15 working days of receipt a complete package from the lender. City 2nd loan as specified in the commitment letter will be placed on reserve for a period of 45 days from date of the commitment

***Please note that beginning January 1, 2015, MOHCD will only accept digital files. More information about digital file requirements will be available as that date approaches.***

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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.
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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.
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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, CSLP, FRDALP, 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.

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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Last updated: 7/3/2014 10:14:33 AM