For many low-income households, homeownership represents an opportunity to build wealth and security that may last for generations. As downpayment requirements increased since the financial crisis in the mid-2000s, less low-income households had access to the funds necessary to purchase a home through the private mortgage market. The Mayor’s Office of Housing and Community Development (MOHCD) currently has two first-time homebuyer loan programs to help current homebuyers in San Francisco.
Background
What are Downpayment Assistance Loans?
Downpayment assistance loans provide City funds to eligible households to afford a residential property on San Francisco’s open housing market. For the Downpayment Assistance Loan Program (DALP) this is up to $375,000 per household. The loan must be used on the down payment of a single home to be used as the primary residence. DALP funds are distributed based on three priority buckets, and each separate type of DALP program bucket is funded separately as well: First Responders Downpayment Assistance Loan Program (FRDALP), SFUSD Educators (Educators DALP) and General DALP. The DALP program is available to households making up to 175 percent AMI (in 2019, that’s a one-person household making $150,850, a two-person household making $172,400, or a four-person household making $215,500).The Below Market Rate (BMR) Downpayment Assistance Loan Program (BMR DALP) only applies to deed-restricted homeownership units priced to be affordable to households that are moderate income or below (100 percent area median income or less).
Another program called the City Second Loan Program (CSLP) provides a down payment loan of up to $375,000, depending on fund availability. The loan can be only used to bid from a collection select group of properties, which are also available on the open market, unlike DALP which can be used on any open market listing. The unit can be re-sold at market prices. However, the owner cannot automatically close on the first offer received, as the City has the option of selecting a low to moderate income another buyer from the CSL program to match the first offer.
Why are Downpayment Assistance Loans Important?
For the general DALP, household income cannot exceed 175 percent of the Area Median Income in 2019 (or $215,500 annual income for a four-person household). For the FRDALP or Educators DALP, household income cannot exceed 200 percent of the AMI in 2019 (or $246,300 annual income for a four-person household in 2019). These specific eligibility requirements help low and moderate-income households compete with other higher-income households for housing on the open market, thus stemming the loss of middle-income families and households from the city.
Key Trends
Households with higher incomes and more assets are more likely to be able to use DALP to purchase a home, particularly a single-family residence (SFR).
The average AMI level of households served by the DALP program in 2017 was 130 percent AMI, which is above-moderate income.
The demographics of lottery preference applicants from 2017 does not reflect citywide demographics,
especially for Asian and Black households which have a lower proportion of applicants than citywide population.
Just as home prices have increased over time, the average DALP loan amount per awarded applicant has grown substantially over time,
while the number of DALP loans granted per year has declined.
For CSLP loans, the average loan amount awarded to recipients has stayed more consistent, but the number of loans awarded per year has decreased since 2006.
Most DALP recipients move to lower income areas because that might be where homes are more affordable to purchase.
What’s Happening Now Related to Homeownership Stabilization and Opportunity?
The maximum loan amount for DALP has increased over time, going from $100,000 to $200,000 in 2014 and at $375,000 per household in 2018. The new limit allows home buyers to afford more homes listed on the open market. In 2016, more middle-class households were also eligible for DALP as the income limit increased to 175 percent AMI for general DALP, and to 200 percent AMI for First Responders DALP and Educators DALP. Also, in 2016, Teacher Next Door forgivable loans became available to be used in addition to DALP loans.
The Home Match program helps current homeowners with extra rooms connect with people who are seeking rooms and need an affordable place to live. These types of programs help homeowners, especially senior homeowners who have larger homes and are looking to right-size, to connect with those looking to home-share and create extra income from renting extra rooms.
Issues with Buying a Home with Downpayment Assistance Programs
In 2017, the average annual household income of DALP recipients who purchased an SFR was over $120,000, and the average household size was three.1 This is above 120 percent AMI (by 2017 standards) – meaning that the program may be primarily addressing home ownership challenges for above moderate-income households. Since this isn’t the full picture of households receiving assistance, more research on defining who receives loan assistance by collecting and analyzing all data, and then addressing if and how this program is designed to meet the “missing middle’s” needs, could be helpful.
DALP recipients are competing with market rate offers on housing units. It is difficult to compete with cash offers and bids over asking price. DALP recipients cannot move as quickly as private offers (it can take up to 60 days to close a transaction). Additionally, the DALP loan amount follows market trends. As home prices increase, down payment amounts also increase, leading to less households being able to utilize DALP funds during a tough housing market. Similarly, less households can utilize CSLP funds during a tough housing market. Since a CSLP buyer must purchase the property at the same price offered by a bona fide buyer, the amount necessary for purchase fluctuates with market behavior.
Other general homeownership issues include needing financial and technical support to rehabilitate existing homes that have problems with safety and accessibility, financial assistance to provide solar home modifications, and supplemental income programs for low-income homeowners facing potential foreclosure.
For Future Consideration
The ideas for future consideration that have the potential to increase community stability in San Francisco are described below. They provide a starting point for agencies, decision-makers, and community members to explore stabilization efforts and identify critical pathways forward. Based on preliminary information, staff is qualifying these ideas according to the type of task, scale of resources and level of complexity to underscore that any of these ideas would require time and additional resources not currently identified. These are not City commitments or recommendations, rather informed ideas that will require careful vetting and analysis as to their reach, resource needs, feasibility, unintended consequences, legal implications, and racial and social equity considerations.
Need-based prioritization
Since DALP only has occupational preferences, further prioritizing households in General DALP by income, length of time in lottery, or risk of displacement could be helpful in finding households with the greatest need.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Data, Regulation
|
| Resource | Generally only staff time would be required
|
| Complexity | Medium – generally some legislation and/or some change of and existing program, and two to three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD) |
| Benefit | The most vulnerable households who qualify for DALP can be prioritized. |
| Challenge | Requires funding and resources and may encounter issues with defining greatest need in combination with eligibility for the program since it relies on 3rd party mortgage companies to offer loans. If applicants were ordered by greatest need, then the program would need to reassess priority in terms of First Responder DALP applicants and other occupational DALP programs as well. |
Homeowner program data streamlining, collection, storage, and analysis
It is difficult to understand why applicants end up not utilizing the DALP or CSLP programs. For example, if a household is selected for DALP and choose to pass, it may be for a multitude of reasons (i.e. change in financial status, no appropriate homes available on the market, moving out of San Francisco, etc.). For CSLP, there is an opportunity to collect and analyze data on race or ethnicity or size of households.
| Type of Response | Mitigation |
|---|---|
| Type of Task | Data
|
| Resource | Generally only staff time would be required
|
| Complexity | Less Complex – generally no or limited legislation and/or an existing program, and one agency involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD) |
| Benefit | Understanding why households selected on lottery end up not using DALP or discovering trends in household characteristics of CSLP applicants and recipients could help improve both programs. |
| Challenge | Requires funding and resources. |
Partnerships with other funding sources
Creating more partnerships with other funding sources could help more households receive down payment loan assistance. There could be coordination with the Small Sites Program to help tenants at risk of displacement convert small apartment buildings to condominiums and purchase those units for individual ownership.
| Type of Response | Mitigation, Prevention |
|---|---|
| Type of Task | Service, Funding
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be required
|
| Complexity | Complex – generally major legislation, and/or new program required, and more than three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | San Francisco Housing Accelerator Fund (SFHAF), Mayor's Office of Housing and Community Development (MOHCD), community partners |
| Benefit | Since funds are limited, partnering with other organizations such as the Housing Accelerator Fund could increase funding sources or provide gap funding sources when households are competing at market rate prices for homes. |
| Challenge | Requires resources to manage more funding sources. |
Lending on co-living homes or co-housing
New homeownership loans that can be given to multiple households to purchase a shared home could expand access to homeownership.
| Type of Response | Mitigation, Early Intervention |
|---|---|
| Type of Task | Policy Implementation, Funding
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be required
|
| Complexity | Complex – generally major legislation, and/or new program required, and more than three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD), community partners |
| Benefit | Being able to split a home into shared spaces helps alleviate the high prices of larger homes and distributes a single downpayment to shared purchasers, thus creating more access to the homeownership programs for households without enough assets to purchase a home on their own. |
| Challenge | Requires resources and funding. |
Homeowner program expansion
Both programs could implement the ability for all homebuyers to apply, not just first-time homebuyers, but ensure that the property being bought will be the only property owned by the homebuyer within the City. Also, additional requirements could be considered, such as if a second or third-time home buyer utilizes the DALP program they must be within the 80 to 120 percent AMI bucket.
| Type of Response | Mitigation, Early Intervention |
|---|---|
| Type of Task | Regulation
|
| Resource | Extensive funding (the kind typically required for capital investments) and staff time would be required
|
| Complexity | Complex – generally major legislation, and/or new program required, and more than three agencies involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | San Francisco Housing Accelerator Fund (SFHAF), Mayor's Office of Housing and Community Development (MOHCD), community partners |
| Benefit | Altering requirements for the eligibility of households to this program could help target more low- and moderate-income households for the program. |
| Challenge | Requires changing the program legislation. |
DALP and CSLP Program assessment of effectiveness in stabilizing middle-income households
As housing prices continue to increase and fewer households can use these programs, the City could continue to evaluate whether programs are efficiently helping achieve more affordable housing and preventing displacement in comparison to other housing programs at Mayor's Office of Housing and Community Development (MOHCD).
| Type of Response | Mitigation |
|---|---|
| Type of Task | Data, Regulation
|
| Resource | Generally only staff time would be required
|
| Complexity | Less Complex – generally no or limited legislation and/or an existing program, and one agency involved
|
| Timing | Long Term (more than 5 years)
|
| Geographic Scale | Citywide |
| Partners | Mayor's Office of Housing and Community Development (MOHCD) |
| Benefit | Since the 2017 DALP awards were given to households with an average of 130 percent AMI, the City could assess how the DALP program is currently assisting at-risk households or stabilizing vulnerable communities in comparison to other anti-displacement efforts such as the Small Sites Program or the Inclusionary Program. |
| Challenge | Requires resources to collect accurate information and analyze the program for effectiveness. |
