City Second Loan Program (CSLP)

The City Second Loan Program provides a downpayment loan for the purchase of units in certain developments.

Detailed information for lenders

The City Second Loan Program provides a downpayment loan, which can be up to $500,000, 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 MOHCD's loan application process.

City Second Loan Fund Balance $500,000 as of May 17, 2023

View listings and apply to purchase a home through MOHCD's City Second program. Applicants must use a MOHCD-approved lender.

There is no interest or 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 the second position on the 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, with no price restrictions.

These properties are privately owned homes. MOHCD’s role is to monitor the sale and assist the prospective eligible buyer purchase a unit.

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.

Read about selling a City Second property.

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:

  • DALP Full Application
  • 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)

Fees

  • No fee to apply for City Second listings, which use a pre-approval application.

  • The nonrefundable fee to process the paperwork of the City Second application. This will be collected after the purchase agreement is signed. See the MOHCD program fees.

Grant of Right of First Refusal

Each property has its own Grant of Right of First Refusal document. It will include how long the period is for that property.

When a City Second property is being sold, MOHCD has the option to buy a City Second property, or assign such right to a participating buyer, within the Right of First Refusal period stated in the seller's GRFR. Any purchase will be at the same price offered by a bona fide buyer.

The general Right of First Refusal process when selling.
Refer to the property's Grant of Right of First Refusal for specific rules.

After a purchase agreement is signed and ratified, the seller must send it to MOHCD. Once MOHCD approves the ratified purchase agreement, the Right of First Refusal period then begins.

  1. If the ratified purchase agreement is from a non-participating (market-rate) 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 our Right of First Refusal.
    • If MOHCD can’t find an eligible City Second buyer at the end of the Right of First Refusal period, MOHCD will allow the non-participating buyer to purchase the property.
  2. A buyer who wants to use the City Second Loan Program submits a  to MOHCD to determine eligibility.

    1. If they are eligible, the participating buyer then has their real estate agent contact the listing agent or the seller directly. MOHCD will assign its Right of First Refusal to the new participating City Second Program buyer.
    2. The participating buyer will prepare an offer that matches the price listed on the ratified purchase agreement. They will deliver it to the seller or the listing agent.
    3. After income-qualified, MOHCD has to determine the participating buyer’s final eligibility. The buyer's lender has to submit a  MOHCD Lender Closing Checklist
      along with all required financing documents.
    4. MOHCD will permit a fully eligible participating buyer to purchase the property by:
      • Assign the City's option to purchase the property to the buyer, and
      • Requiring the buyer to grant MOHCD a new Right of First Refusal.
  3. MOHCD may also decide to buy the unit at the market-rate offer price, on the City's behalf.

    • This is an option when no eligible City Second buyers are found.

    Borrower eligibility

    • First-time homebuyers: All adult household members must not have any ownership interest in a residential unit for the last three years.
    • Completed homebuyer education from Homeownershipsf.org
    • Maximum Income Limits: household income must not exceed 145% of the Area Median Income (AMI).
      • 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. 
    • Minimum Downpayment: Borrower must contribute a minimum of 1% of the purchase price toward the down payment or closing costs. The entire 1% can come from gifts, if necessary.
    • Liquid Assets: Borrower must have no more than $60,000 after purchase.
    • Post-Purchase Reserves: Borrower must have a minimum of 2 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 2 months of:
      • Principal
      • Interest
      • Mortgage Insurance (if any)
      • Property taxes
      • Hazard insurance
      • Homeowner’s association dues
    • Occupancy: The property must be owner-occupied during the life of the loan.
    • Household Size: The size of a Household must be no greater than the total number of bedrooms in the Property plus one (1). In other words, a single person may purchase a two-bedroom property or a smaller property if they choose; a two-person household may purchase a three-bedroom property or a smaller property if they choose; and so on.

    • 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.
      • 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, as listed on the two most recent tax returns. An unborn child will be not counted as a household member. Elderly adult household members may be considered dependents as long as they are listed as dependents on the two most recent tax returns. All income from dependent adults and children must be included in the total household income. A spouse or domestic partner of any titleholder is not considered a dependent.

    Property eligibility

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

    Parkview Heights (Potrero Hill), 122 units, 2-3 bedrooms
    Street location: Wisconsin, DeHaro, Caire, Fontinella, Blair & Littlefield Terraces

    Holloway Terrace (Ingleside), 42 units, 2-3 bedrooms
    Street location: Holloway, Faxon and Capitol

    Armancio Ergina (Western Addition), 72 units, 1-3 bedrooms
    Street location: Scott, Ellis & O'Farrell

    Cayuga Terrace (Outer Mission), 13 units, 2-3 bedrooms
    Street location: Delano at Geneva

    Parkview Commons (Haight Ashbury), 114 units, 1-3 bedrooms
    Street location: Frederick & Carl

    101 Valencia (Mission-South of Market), 109 units, 1-3 bedrooms
    Street location: Valencia, Stevenson & McCoppin

    Goodman II (Potrero Hill), 18 units, 1-3 bedrooms
    Street location:18th Street (BMR Units)

    Baycrest Towers (Downtown), 29 units, Studio, 1 & 2 bedrooms
    Street location: 201 Harrison Street

    Financing requirements

    • Primary Financing: Borrowers must be able to qualify for the 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, closing costs, and necessary reserves.
    • Lien Position: City Second loan must be in the second position behind the first mortgage.
    • 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 105%. 
    • 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 30% of the household’s gross income. The ratio of monthly housing costs, plus all other monthly debts (including credit cards, car payments, etc.) should not exceed 45% of the household’s gross income.
    • Front-End (Housing) Ratio: No less than 30% and no more than 43%. MOHCD may consider a maximum front-end ratio of up to 45% if two or more indicators are present:
      • Proven ability to devote a larger amount of income to housing expenses. The applicant has made rental payments for 12 consecutive months that are equal to or greater than the proposed monthly payments for the housing being purchased
      • At least 6 months of housing expenses in reserves through liquid assets, or at least 12 months of housing expenses in reserves through non-liquid assets and retirement accounts
      • FICO score greater than 700
      • A large down payment (20 percent or more) toward the purchase of the property
      • The proposed housing expenses will not increase more than 5% over previous housing expenses
    • Back-End (Total Debt) Ratio: No more than 45%.
    • Co-Signing: Co-signing for a City Second loan by a non-household member is not allowed.
    • Loan Signing: No power of attorney is allowed. All applicants must be physically present to sign loan documents.
    • Closing Costs: City Second loan funds may be used to cover customary, non-recurring closing costs normally incurred in a residential real estate transaction, and subject to MOHCD's approval in its sole discretion.

    Maximum loan amount

    Up to $500,000 but subject to funding availability. 

    Loan terms

    • City Second Loan Terms: 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 $500,000 with the purchase price of $1,250,000, the loan amount is 40% of the purchase price. Therefore, the share of appreciation would also be 40%.

    City Second loan documents

    Training for participating lenders

    Mortgage loan officers 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 lender training and pay the required fee. Each individual mortgage loan officer or mortgage broker must complete the lender training every year.