City Second Loan Program (CSLP)
City Second Fund Balance
Detailed information for lenders
The City Second Loan Program provides a downpayment loan, which can be up to $375,000, but depends on fund availability. The loan is used to bid on a collection of properties also advertised on the open market.
Interested buyers apply to listings, and are pre-approved by MOHCD for income. After winning the bid, the buyer then works with their lender to apply for loan funds. See City Second Loan Application Process »
Applicants must work with a MOHCD-approved lender
There is 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 MOHCD loan is in second position on title after the first mortgage and can be repaid at any time without penalty.
Properties under this program can be sold at the market price. There are no price restrictions on the properties.
When selling a City Second unit, MOHCD has a Right of First Refusal. Owners or listing agents must notify MOHCD before putting the properties on the market. The available unit must then be listed on the MOHCD website.
These properties are privately owned homes and MOHCD’s role is to monitor the sale and assist the prospective eligible buyer to purchase these properties. A qualified buyer may elect to purchase the property with or without the City Second Loan and MOHCD will exercise its right to assign a buyer during the Right of First Refusal period.
Pre-approval application, to apply for listings
To apply for a City Second property, the applicant must send in a pre-approval package to verify eligibility. It should include:
- City Second Loan Program Application- Pre Approval
- Three (3) most current & consecutive pay stubs
- Three (3) most current & consecutive months of Bank Statements
- EDD Authorization for Release of Records (if applicable)
- Unemployed Affidavit (if applicable)
- Self-Employed Affidavit (if applicable)
- Profit and Loss Statement (signed & dated, if applicable)
- Three (3) most recent Federal Income Tax Returns with all applicable schedules and W-2s (signed and dated)
- Three (3) years most recent Income Tax Transcripts
- No fee to apply for City Second listings, which uses a pre-approval application.
- $601 nonrefundable fee to process the paperwork of the City Second application. This will be collected after the purchase agreement is signed.
- This fee is $721 if you’re applying with a Mortgage Credit Certificate.
Grant of Right of First Refusal (GRFR) when selling
The property’s ratified purchase agreement will have the details for the Grant of Right of First Refusal.
MOHCD has the option to purchase a City Second property or assign such right to the participating buyer, within the Right of First Refusal period that is stated in the seller's GRFR. Any purchase will be at the same price offered by a bona fide purchaser.
When a property is on the market for sale, a participating buyer who wishes to use the City Second Loan Program to purchase the property submits a City Second Loan Program Pre-Approval Application to MOHCD to determine eligibility. Once program eligibility is established, the participating buyer must have their real estate agent contact the listing agent or the owner directly.
For a participating buyer using the City Second Loan
After income pre-approval, MOHCD has to determine the participating buyer’s final eligibility. The buyer has to submit a City Second Loan Program Application package along with all required financing documents.
If the property is sold to a buyer that meets MOHCD’s City Second loan requirements, MOHCD will permit the participating buyer to purchase the property by:
- Waiving its right of first refusal from the seller, and
- Requiring the new purchaser to grant MOHCD a new right of first refusal.
For a non-participating buyer
The seller can choose to take their first offer from a buyer who is participating or not participating in MOHCD's City Second program.
If the first offer is from a non-participating buyer, MOHCD will review its pool of interested first-time homebuyers. An eligible City Second buyer must be found within the time period to exercise the Right of First Refusal.
If an eligible City Second buyer is found, that buyer will prepare an offer which matches the offer price from the non-participating buyer, and deliver it to the seller or the listing agent. At the same time, MOHCD will assign its right of first refusal to the new City Second buyer, who will exercise it by notice to the seller or the listing agent.
If MOHCD can’t find an eligible City Second buyer at the end of right of first refusal period, MOHCD will prepare a new grant of right of first refusal for the non-participating buyer to sign. The City has the discretion to shorten the term based on review of the pool of eligible participating buyers.
- First-time homebuyers: No member of a household must have had any ownership interest in a residential unit for the last three years.
- Completed homebuyer education from Homeownershipsf.org
- Maximum 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. See Current Year Maximum HUD Adjusted Area Median Income (AMI) Limits »
- The combined income of all household members 18 years or older, 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,
- Maximum loan amounts are tied to the household income category.
- The amounts in the chart represent the current figures subject to an annual adjustment based on HUD AMI limits.
- Minimum Downpayment: Borrower must contribute a minimum of 5% (2.5% from borrower's own funds, and remainder from gifts or grants).
- Liquid Assets: Borrower must have no more than $300,000 prior to purchase, and no more than $60,000 after purchase.
- Post-Purchase Reserves: Borrower must have a minimum of 3 months’ reserves after purchase. In addition to Liquid Assets, vested funds from retirement accounts that permit withdrawals may be also used for reserves. This reserve should include 3 months’ of:
- Property taxes
- Hazard insurance
- Homeowner’s association dues
- Occupancy: The property must be owner-occupied during the life of the loan.
- Eligible Household Member: An eligible household member must either be:
- 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 Second loan.
- Listed as a dependent on 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.
- 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.
- 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. And 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.
- The City Second 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, Caire, 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|
- Primary Financing: Borrowers must be able to qualify for a first mortgage from an approved lender prior to submitting an application for a City Second loan. Borrowers must have sufficient funds to meet the required downpayment, and necessary reserves as well as sufficient income to meet the impounded monthly mortgage payments.
- Lien Position: Unless pre-approved by MOHCD, the City Second loan must be in second position behind the first mortgage.
- First Mortgage Requirements: The first mortgage loan must be a 30-year fixed rate mortgage. The mortgage payment must be fully amortizing.
- Loan Types not allowed: Reverse mortgage, stated income, ARM (adjustable rate mortgage), reverse mortgage, interest-only, negative amortizing, balloon payments
- Impounds: The first mortgage lender must collect and manage impound accounts for property taxes and hazard insurance for the loan term.
- Loan-to-Value Requirements (LTV and CLTV): The minimum Loan-to-Value (LTV) is 50%, and the maximum Combined Loan-to-Value (CLTV) is 97%.
- 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 33% 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.
- Co-Signing: Co-signing for a City Second loan by a non-household member is not allowed.
- Closing Costs: CSLP Funds may be used to pay for non-recurring closing costs up to 2% of the purchase price or appraised value, whichever is less.
Maximum Loan Amount
Up to $375,000 of the purchase price, as funds are available. 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).
Post-Purchase Loan Terms
- Loan Terms: The term of the City Second Loan is 30 years. The City Second 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.
- For example, if the borrower receives the City Second loan in the amount of $375,000 with the purchase price of $950,000, the loan amount is 39% of the purchase price. Therefore, the share of appreciation would also be 39%.
- Prepayment Penalty: There is no prepayment penalty associated with payment of these loans prior to the due date. 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.
- 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.
- Payoff Requests: Borrowers must submit a written request for payoff. If the borrower wishes to have a third party submit a request for payoff on their behalf, they must submit a signed authorization allowing MOHCD to provide information to the third party. In addition, borrowers must submit at their own cost, a current fair market appraisal report dated within 90 days of the payoff request submission.
- Refinance/Subordination: The CSLP loan can be subordinated to the refinancing of the existing first mortgage for a lower interest rate and/or better loan term. More details about refinancing and subordination »
- Home Equity Lines of Credit and Home Equity Loans: MOHCD does not allow CSLP borrowers to open Home Equity Line of Credit and Home Equity Loans. Borrowers who use such programs are in violation of their Program restrictions and will not be allowed by MOHCD to refinance their CSLP loans. The CSLP loan program will be due and payable with share of appreciation if the Borrower is deemed out of compliance with this policy and all other applicable program policies.
- Closing appointment: The buyer must sign the Commitment Letter and Affidavit at MOHCD’s offices at 1 South Van Ness, within 5 business days of request.
City Second Loan documents
- City Second Loan Program Application- Pre Approval
- For applying to listings
- Combined Downpayment Loan Application
- To reserve funds after getting a ratified purchase agreement. See the City Second Loan Application Process »
- Grant of Right of First Refusal
- Required for all properties under this program. Read more about the Grant of Right of First Refusal »
- City Deed of Trust (City Second)
- The City Deed secures the loan against the title of the property. The City loan will subordinate to the first mortgage.
- City Note (City Second)
- 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.
Training for Participating Lenders
Mortgage Loan Officers (MLO) or mortgage brokers who would like to become participating lenders for MOHCD's homeownership programs, including City Second, DALP, MCC 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 MOHCD and sign the Homeownership Programs Lender Agreement.