Friday, March 24, 2017

City of San Jose Homebuyer Loan Programs / Down Payment Assistance Programs

City of San Jose: Homeownership Loan Programs / Down-Payment Assistance Programs

Homeownership Loan Programs

General Underwriting Guidelines
Updated 11/30/2016
Homebuyer Program Guidelines Page 2 of 27

Blank Page
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Table of Contents
Mission and Goals of the City of San Jose’s Programs………….…. 4

I. Program Requirements…………………………………………… ........ 5

A. Borrower Eligibility……………………………………………….…. 5

1. First Time Buyer……………………………………………….…. 5

2. Income Eligibility…………………………………………………. 6

3. Asset Limitations…………………………………………………11

4. Definition of Household Size and Eligible

Household Members………………. ....................................... 11

5. Allowable Size of Home to be Purchased………………….… 14

6. Homebuyer Education Requirement…………………….……. 15

7. Credit Requirements and Underwriting………………………. 16

8. Welfare Reform and Immigration Status…………………….. 19
B. Property Eligibility…………………………………………………. 19

1. Eligible Housing……………………………………………. ..... 20

2. Property Conditions…………………………………………. 20

3. Maximum Sales Price………………………………………. 21
C. Additional Requirements………………………………..……. ...... 21

II. Application Process………………………………………………….. 24

III. Program Monitoring………………………………………………… 25

IV. Appeals Procedure…………………………………………………… 25
Appendix 1……………………………………………………………. ........ 26

Appendix 2……………………………………………………………….. 27

Appendix 3………………………………………………………………. .... 28

Homebuyer Program Guidelines Page 4 of 27

Mission and Goals of the City of San Jose’s Programs
The mission of the City of San José’s Homebuyer Program is to assist low and

moderate-income households attain homeownership in San Jose’s

neighborhoods through down-payment assistance loans provided by the City.

The City’s Homeownership funds are targeted to households that would not be

able to purchase a home without City financing. The City strives to assist as

many homebuyers as possible by limiting the subsidy levels to the amount

needed by the household to purchase a modest home that is appropriately sized

for the household.

The City’s Homeownership Programs are comprised of three main programs:
Building Equity & Growth in Neighborhoods (BEGIN) Program

CalHOME Program

Inclusionary Second Mortgage Program

The City requires a minimum loan amount of $5,000 for all the City of San

José’s homebuyer programs:
BEGIN Program: Downpayment assistance program in new construction

developments for low- and moderate-income first-time homebuyer.
CalHOME Program: Downpayment assistance program in specific new

construction developments for low-income first-time homebuyer.
Inclusionary Second Mortgage Program: The Inclusionary second mortgage

program is currently dormant. Some new construction builders may offer

second mortgage programs to comply with the City’s Inclusionary Housing

Policy. However, the City provides the builders with an array of possibilities

when it comes to meeting compliance; the second mortgage program is just

one method.
Homebuyer Program Guidelines Page 5 of 27

I. Program Requirements
A. Borrower Eligibility
1. First-Time Buyer
All household members are required to be first-time homebuyers. A firsttime

homebuyer is a household whose household members have not

owned any real estate during the prior three calendar and tax years. The

City may utilize any reasonable method of documenting first-time

homebuyer status including, but not limited to, a review of the households’

tax returns and credit report. For example, if a household has received

tax benefits through Schedule A on their itemized deductions within

the last three years or if the household has a real estate loan appear on

their credit report and ownership on the grant deed within the last three

years, the household will not qualify as a first-time homebuyer.
All City loans will allow households to have owned and sold a

mobilehome prior to application, however, they cannot own any

real estate at the time of applying.
A displaced homemaker is considered a first-time homebuyer.

A displaced homemaker is someone who, while a homemaker,

owned a home with his or her spouse/domestic partner or

resided in a home owned by the spouse/domestic partner. A

displaced homemaker must have not worked on a full-time basis

as a member of the labor force for a consecutive twelve-month

period and who must have been unemployed or underemployed,

experienced difficulty in obtaining or upgrading employment, and

worked primarily without remuneration to care for his or her

home and family. A displaced homemaker must not occupy a

previously owned residence and must not be obligated to make

mortgage payments and maintain a property. A displaced

homemaker must not occupy the previously owned residence

and must provide verifiable documentation that the household is

renting and occupying another property. Note: If the

spouse/domestic currently occupies a previously owned home
Homebuyer Program Guidelines Page 6 of 27

partner of a household, then the City will require the household to

provide verifiable documentation that the household is not required to

contribute to the housing costs from the previous home.

A displaced homemaker may also be a single parent (example: a

divorced person) who, while married, owned a home with his or her

spouse/domestic partner or resided in a home owned by the

spouse/domestic partner. A single parent is an individual who is

unmarried or legally separated from a spouse and has one or more minor

children for whom the individual has custody or joint custody.

All households with previous ownership of a primary residence (e.g.
previously married and presently separated or divorced thereby

changing the martial status of the household to a displaced person) will

be required to submit a Final HUD-1 from the sale of a previously owned

home to verify eligibility as a first-time homebuyer.
2. Income Eligibility
Overview: There is no presumption of income eligibility. Verification from

all income sources, for every household member who is 18 and over,

must be obtained. All income documentation will be reviewed and any

questions or concerns that arise as a result of the review, must be

explained, and documented. It may be necessary to request

additional information and documents BEFORE final approval can be

obtained. The file must include sufficient written detail that documents

how all questions and concerns were addressed. The most

conservative income calculation approach will be used if information

cannot be verified to the City’s satisfaction.

Total gross income for the entire household may not exceed the income

limit in effect at the time of application to the homebuyer program. In

general, Income is defined as income earned from all household

members age 18 years and above and projected forward at the same

level for the next twelve months. Income includes earnings from

employment, government benefits, investments, interest income, and

other cash-generating activities. All household members, 18 and over,

must submit three of their most recent paycheck stubs as part of their

loan application. City staff will use the following methods to calculate
income for all household members:

A signed letter explaining the concern MAY NOT be sufficient. All

attempts must be made to verify the information stated in the affidavit.

If the concern cannot be adequately documented, the application may

be denied.
Homebuyer Program Guidelines Page 7 of 27

A. Income from full-time employees will be calculated as follows:
Hourly Employees- Income documentation and

information will be obtained from the household’s three

most recent paystubs. Base pay income will be calculated

by taking the gross year-to-date (YTD) earnings and

annualizing the income over the number of months

employed during the year to obtain the gross monthly

income. The gross monthly income will be projected

forward at the same level of earnings for 12 consecutive

months. Paystubs are considered outdated after 60 days.

For these purposes, months will be pro-rated using a

30-day month.
Salaried Employees- Income will be calculated and

projected forward by multiplying the bi-weekly gross salary

by 26 weeks or the bi-monthly gross salary by 24 payperiods

and adding in the amount earned from annual

bonuses, commissions, in-lieu payments, etc.
Third party verification- Third party verification will be

obtained to support paystubs. If the third-party verification

is not available or was attempted with no success, then a

review of paystubs will be sufficient to document income.

All employed household members must submit a signed

Verification of Employment Form and/or an Employment

Acceptance Offer signed and dated from the employer on

letterhead. The Employment Acceptance Offer must state

the date in which employment shall commence, the salary,

and signed by the employer and employee.

B. Income from part-time or variable income employees will be

calculated as follows: The City will calculate the gross year-todate

income from the most recent paystub and averaging the

income over the number of months employed during the year to

It is important to check the reported income against both

the tax returns and the income provided to the Lender. If

the calculated income does not match both documents,

then further investigation and analysis is required and

must be documented in the file. For example, a

household member may have received either a pay

increase or decrease since the income tax form was

filed. The Verification of Employment Form should also

be reviewed for automatic raises. The raise must be

included in the income calculation.
Homebuyer Program Guidelines Page 8 of 27

obtain the gross monthly income. The gross monthly income

will be projected forward at the same level of earnings for 12

consecutive months. If the year-to-date income covers less than

three months in the current year, the City may include the

average year-to-date earnings from the prior calendar year in

addition to the current year if the employee’s work schedule has

not significantly changed. In cases were hours worked varies for

each pay period, a third-party verification is required. Any income

discrepancies must be verified by multiplying the hourly rate by

the average number of hours worked provided by the

household’s employer.

C. Income from overtime, commissions, ongoing stipends, shift

differential pay, and other sources will be annualized (using

year-to-date earnings) and included in the household’s gross

monthly income. Income that is received in lieu of earnings,

despite the temporary nature of such pay (i.e. unemployment,

worker’s compensation, and severance pay) will also be included

as income. Income received from one-time non-recurring

bonuses, non-recurring lump-sum payments from the sale of

stocks or bonds, stock options, lump-sum inheritances, retropay,

insurance payments, or relocation benefits can be

excluded. The non-recurring nature of such income must be

documented by a fully completed Verification of Employment

(e.g. VOE) and/or from alternate source documentation

acceptable to the City.

D. Interest income from investment and capital accounts, such as

checking, savings, money market, certificate of deposit

accounts, dividend income from mutual fund accounts, stocks,

and other income-generating assets must be included in the

household’s income. The interest income earned will be

calculated on all capital account balances, when the household

has over $5,000 in total assets. The interest rate will be

calculated at the greater of the actual annual earnings, 2.5%, or

the current passbook rate as established by the HUD regional

office. These amounts will be included in the household’s

household income only when the interest income meets the

following criteria:
The account is considered liquid, and the household can

withdraw the funds without tax penalty.

If it is determined that the overtime pay or bonuses earned

by the household member will be received on a regular

basis, then the average amount earned over the past 12

months will be added to the total amount of projected

earned income.
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The interest rate earned on the account is variable, and

subject to change based on market conditions.

E. Current monthly income and annuity payments from retirement

accounts, (including social security and pensions), alimony,

child-support, and other steady, ongoing sources will be included

in the household’s gross annual household income calculation.

Non-taxable incomes will not “be grossed up” by the City,

regardless of the lenders determination of such income.

F. All forms of income from non-household spouses and other

household members who are 18 and over will be included in the

gross monthly income calculation, regardless of the taxability of

such income. Annual income from full-time college students as

described in Section VIII will be included.

G. Income from seasonal and part-time jobs such as coaching,

lecturing, test proctoring, etc., will be included only when the

household can reasonably be expected to continue to be

employed in the same line of work over the coming twelve


H. Capital losses will not be deducted from the income calculation.

I. For self-employed households, income will be based on the net

income before taxes. The borrower must provide two forms of

documentation including:

1. The most recent 3 years’ business and/or

personal federal tax returns, including W-2’s or

1099’s. Positive net income from a business will be

added to the household’s gross income AND

2. A year-to date profit & loss and income statements,

signed by the individual who prepared the statement.

This must include information covered year-to-date

and a letter of explanation, signed and certified by the

household, stating the anticipated net household

income (after deducting business expenses) over the

next 12 months; or
Homebuyer Program Guidelines Page 10 of 27

3. A year-to-date-balance sheet, prepared and signed by

the individual who prepared the statement, reflecting

the financial position of the business at a specific point

in time and a signed letter of explanation regarding

the household’s anticipated net household income

(after deducting business expenses) signed and

certified by the household.
No-income Household members. Each adult household member who

does not receive income from any source shall be required to submit:

1) An Income Affidavit;

2) Letter of Explanation;

3) Social Security Administration Consent for Release of Information;

4) Request for Verification of Benefits, and;

5) An Authorization for Release of Records from the

Employment Development Department.
3. Asset Limitations
All household members are required to provide a minimum of

two months of recent bank statements for all asset accounts.
Statements may not be older than 90 days upon the Housing

Department’s receipt of the application package.
The household is required to liquidate a portion of their assets

when the value of such liquid assets will exceed $75,000 at the

close of escrow. However, liquid assets do not include the value

of equity in real property, cash-value of life insurance plans,

furniture, jewelry, automobiles, pensions, and/or individual

retirement accounts for persons under the age of sixty,
Acceptable sources of down payments include, but are not

limited to the following sources: Checking and Savings

Accounts, Investment or Capital Accounts, Retirement

Accounts, Gift Letters (a copy of the Gift Letter and the source

It may also be important to check both the personal and business bank

statements to determine if the information provided is consistent with

the information provided.

The City may refuse to include a person as an eligible household

member if the applicant does not provide sufficient documentation to

determine program eligibility.
Homebuyer Program Guidelines Page 11 of 27

and origin of the funds must be included with the City’s loan

application, for example the bank statement, Investment

Statement etc.).
4. Definition of Household Size and Eligible Household Members

A. Household Size
Determining the household size is critical because income limits

used to determine eligibility are based on the total number of

people in the household. The Household is comprised of ALL

individuals who are currently living together and will continue to be

living together in the subject property. New household members
cannot be added to the application to income qualify for a City

loan. In addition, the following individuals are not counted as part

of the household: foster children, unborn children, children who
live with the household (parent) less than 50% of the time,

children being pursued for legal custody or adoption who are not

yet living with the household at the time of application, and nonfamily

B. Eligible Household Members
To be considered an eligible household member, the person must

meet one of the following criteria:
Person is on the title and loan of the property. All spouses and

domestic partners must be included in the household and must

appear on the City application and the City loan; or,
Person is a dependent(s) listed on the tax returns of an eligible

household member. All household members who are under 18

years of age must be the legal dependent of an adult

household member.
Members of the household who are not either on the title and/or primary

loan of the property and are not a dependent can only be considered an

eligible household member if they are currently living in the same

household. If adequate proof cannot be provided that a person is
currently living in the household, then the person cannot be included as

part of the household.

In some cases, documentation is required to establish

whether a child is part of a household. If applicable, court

documents verifying child custody or foster care must be

included in the file.
Homebuyer Program Guidelines Page 12 of 27

Full-time college students, 18 and over, who is living away from


To be eligible to be included as a member of the household, the fulltime

student must meet one of the following requirements
Be claimed on a household member’s tax returns as a

dependent OR

Receive over 50% financial support from the household

Additional requirements:
Student’s income must be counted in the household's total income

calculation. If the student is unable to produce income documentation,

the City will add $480 to the household's annual household income.
A household member MAY NOT self-certify residency NOR can
they be added to an application after it has been submitted.

Examples of documentation that may be provided to substantiate

that the person is a member of the household include the following:
Current lease or rental agreement

School records

Driver’s license or CA ID

Utility bills

DMV registration

Credit card or bank statement

Credit Bureau Report

In either case, documentation from the educational institution

must be provided that shows the student is enrolled for 12 or

more units/credits. If the student is not claimed on a tax return,

then documentation showing that the household provides 50%

financial support must be provided with a letter of explanation

outlining how the 50% threshold was met and backup

documentation to support the calculation. The information cannot

contradict any other funding source. For example, if the student

receives a grant which required that he/she be emancipated,
then the student cannot be counted as part of the household. A

self-certification letter will not be accepted. If it cannot be

established that the student receives 50% of his or her support
from the household, then the student cannot be included in the

Homebuyer Program Guidelines Page 13 of 27

However, if the student is a head of household or a spouse/domestic

partner of the household, the student will be required to produce

verifiable income documentation.
Note: The income of family caretakers (e.g. relatives) who live with the

household will be included in CalHome funded loans.
C. Types of Persons Included in Household Size

Eligibility Determination and Required Documentation
Persons counted in

Household Size





Other Income and




Head of Household Yes Yes

Spouse or

domestic partner

Yes Yes

Co-Head of


Yes Yes

Other Adult (18 and

over) living in


Yes Yes

Child under18 No No

Full-time Student

(18 and over)

Only count the first

$480 of earned


Step-by-Step Methodology for Projecting Annual Income
Step 1: Determine household size.

Step 2: Collect all income documentation.

Step 3: Calculate household’s projected income based on


Step 4: Compare the amount of projected income against the

funding source’s current income limits. NOTE: Federal and

state income guidelines are not always the same.
5. Allowable Size of Home to be Purchased
No City loan may be used to purchase a home larger than is

considered adequate to meet the needs of the household. Adequate

home size is established as one bedroom per household member,

plus one (see chart below). This guideline applies to all Cityadministered

and City-funded loan programs.
Homebuyer Program Guidelines Page 14 of 27

Household Size Maximum Number

of Bedrooms

1 2

2 3

3 4

4 5

Households that wish to purchase homes larger than these

guidelines allow should send a written request, and an

explanation of need, included in the household’s loan

application, to the City. The Homebuyer Program Manager

may make an exception for expecting parents; households who

run a verifiable home based business, or a household who is in

the process of applying for legal guardianship of a dependent.

Households seeking exceptions under this policy should submit

verifiable evidence of their projected increase in household size.
Developers of new construction Inclusionary homes may sell a

home to a household outside of this Policy, provided that the

home has been listed for sale on the market and the builder has

actively marketed the home to households in accordance with

this guideline for a minimum of 60 days prior to offering the

home to a household seeking an exception under this policy. To

verify the time, the unit has been on the market, the City may

require the developer to provide supporting documentation

reflecting the release date of the unit.
6. Homebuyer Education Requirement
All household members who will either be on the title of the home or

loan (or both) must complete an in-person, 8-hour; HUD-certified prepurchase

homebuyer education seminar through one of the HUD

certified organizations prior to City loan approval. Households will be

required to submit a certificate of completion, valid for three years

from the date of completion, as a part of their loan application. Please
Homebuyer Program Guidelines Page 15 of 27

contact the City’s Housing Department for a list of Homebuyer

Education Service providers.
7. Credit Requirements and Underwriting
The Lender must provide a credit report and the report will be

analyzed for consistency with the loan application as well as for

complete credit account information from the credit reporting agency.

All borrowers must have a middle FICO credit score of at least 620 on

a merged credit report, no exceptions.

All outstanding liens or judgments must be disclosed at the time of

application and cleared prior to loan approval.

The City requires buyers to contribute a minimum of 1% of the sales

price, from his/her own funds, to close the transaction.

In general, the City’s homebuyer programs are open to use from all

lenders. The City maintains a list of active lenders, but does not

provide referrals to any particular lender. The mortgage lender or

broker will assist the household complete the City loan application and

submit it to the City for review and approval on behalf of their client.

Lenders who have either successfully submitted a minimum of 3 City

loan applications or successfully submitted 1 City loan application and

attended the Homebuyer Educational Class in the prior 12-month

period may request to be added to the City’s active lender list.

The City reserves the right to remove inactive and/or non-compliant

lenders from the list of lenders without notice.

The City also reserves the right to refuse to work with non-compliant

Homebuyer Program Guidelines Page 16 of 27

A. Front-end Ratio: For applicants earning 80% or below of the Area

Media Income (AMI) the front-end ratio (i.e. monthly housing

payment) or the debt-to-income ratio as it is commonly called is

calculated by dividing the total monthly housing payment by the

household's gross monthly income. The front-end ratio shall not be
less than 25%, or exceed 37%. For applicants with an income

between 81%-120% AMI, the front-end ratio shall not be less than 28,
nor exceed 37%.

The front-end ratio includes:
Principal and interest payment on the first mortgage;

Principal and interest payments, if any, on subordinate nondeferred

Real estate taxes;

Hazard insurance premium;

Flood insurance premium, if applicable;

Private mortgage insurance premium, if applicable;

Monthly Homeowners' Association dues for condominiums and

for homes located in planned unit developments (PUD).

B. Back-end Ratio: The back-end ratio, or the total debt-to-income ratio,

is calculated by adding together the total monthly payments of all

existing long-term debt (debt with a remaining term of 10 or more

months) and the total monthly housing payment and dividing that sum

by the household's gross monthly income, as defined in Section III.

The back-end ratio should not exceed 43% of the household’s gross

monthly income. The back-end ratio includes:
The monthly housing payment as defined above;

Long-term installment debt beyond 10 months remaining to be

Revolving accounts and lines of credit;

Alimony, child support or maintenance, if applicable.

Exception: Some households may qualify for first-mortgage financing at

higher ratios than those cited above. Recognizing that the financial
Homebuyer Program Guidelines Page 17 of 27

circumstances of each homebuyer are unique and that there may be

other factors besides debt-to-income ratios that reflect the household's

ability and willingness to repay mortgage loans, the City may consider

the following indicators in approving higher ratios:
The household’s proven ability to devote a larger amount of

income to housing expenses. The household 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;
The household’s substantial net worth as demonstrated through

non-liquid assets and retirement accounts;
The household has at least one FICO credit score greater than

The household’s demonstrated potential for increasing his/her

The household’s down payment on the purchase of the

property is at least five percent of the sales price and is

made from his/her own funds;
The household’s substantial non-taxable income such as child

support, disability payments, retirement payments, etc.;

The household’s housing expense will not increase more than

five percent over previous housing payments.

Lenders and households seeking City approval of higher debt ratios

should submit a written request and a letter of explanation seeking

higher ratios to the Homebuyer Program Manager as part of the

household’s loan application. The decision to approve or deny higher

ratios will be made in accordance with the above stated compensating
factors; however, the maximum front end ratio may not exceed 40% and

back end ratio may not exceed 45%.

First mortgages may not include provisions for potential negative

amortization, balloon payments, or principal increases on deferred

interest. For most City loan programs, thirty year fixed-rate mortgages

are required.

City loans may only be used for down payment assistance, and not used

to pay for closing costs, buy downs, or prepaid mortgage insurance

premiums. The total loan-to-value of all loans, including City, other junior

and senior loans, cannot exceed one hundred percent of the CLTV.
Homebuyer Program Guidelines Page 18 of 27

8. Welfare Reform and Immigration Status
Welfare Reform Act and Immigration Status: All City Programs are

subject to verification of the legal residence requirements of the

Welfare Reform Act (WRA).

To be eligible for benefits under the WRA, all household members

must be U.S. Citizens, U.S. non-citizen nationals, or “qualified


A “qualified alien” is:
An alien lawfully admitted for permanent residence under the

immigration and Nationality Act (INA);
An alien granted asylum under section 208 of INA;

A refugee admitted into the U.S. under section 207 of the INA;

An alien paroled into the U.S. under section 212(d)(5) of the

INA for at least one year;
An alien whose deportation is being withheld under section

243(h) of the INA as in effect prior to April 1, 1997 or whose

removal is being withheld under section 241(b)(3) of the INA;
An alien granted conditional entry pursuant to section

203(a)(7) of the INA as in effect prior to April 1, 1980;
An alien who is Cuban or Haitian entrant as defined in section

501(e) of the Refugee Education Assistance Act of 1980; or
An alien who (for whose child or parent) has been battered or

subjected to extreme cruelty in the U.S. and otherwise satisfies

the requirements of § 431 (c) of the Act.

All household members must meet the legal residence requirements to

be eligible for City programs.
B. Property Eligibility
The home must be located within the municipal boundaries of the City of

San José (cannot be located in county pockets). If the home is in a FEMA

designated Special Flood Hazard Area, the household will be required to

obtain flood insurance.
Homebuyer Program Guidelines Page 19 of 27

1. Eligible Housing
Eligible types of City-assisted housing types include singlefamily

detached and attached homes including townhomes and


The seller of the home must occupy the property as a primary

residence or the home must be vacant for at least 90 days prior

to listing date. The Property Owner must certify that no third

party had to move out at any time before or after the listing

date in connection with the sale of the Property or to

facilitate the sale of the Property. Properties being occupied by

tenants at the time the property is listed for-sale, are not eligible.

The Housing Department requires the legal owner of the

proposed assisted home to sign a seller’s occupancy affidavit.

The exclusive selling agent of a bank-owned property may sign

the occupancy affidavit on behalf of the seller.

Owners of a new construction unit that had no previous

occupancy are not required to sign the seller’s occupancy

2. Property Conditions
All City-assisted homes must be in good condition and meet

local and federal housing quality standards, and comply with

local building codes. The City will not review the household’s

home inspection report, however, the City may elect to perform

an inspection of the property and a copy of the inspection report

will be shared with Housing staff. If the City elects to perform

an inspection, the buyer’s agent should be prepared to make

arrangements to allow a City inspector into the property in

his/her presence prior to obtaining a loan approval from the City.

In general, all ordered inspections occur within ten business

days of the date the loan application was submitted to the City.

However, if the City determines that a formal Lead Based Paint

Test should be ordered, the inspection time may take up to

fourteen business days. Buyer’s and seller’s agents, lenders,

and the prospective homebuyer should consider the City’s

physical inspection timelines when scheduling escrow closing

dates and removal of contingencies.

During an onsite inspection, housing staff will perform a visual

assessment of the condition of the paint of the unit. All homes

built prior to 1978 with signs of chipping, cracking, or other
Homebuyer Program Guidelines Page 20 of 27

deteriorated paint will be formally tested for the existence of lead

based paint at no cost to the buyer or seller. However, a copy of

the Lead Hazard Evaluation Report will be automatically sent to

the California Department of Public Health and become
available to the public. The City may deny a loan based on

the condition of the property. Property conditions that may

result in denial of the loan include:
The existence of chipping, cracking, or other signs of

deteriorating lead-based paint in either the interior or exterior

of the unit.
Violations of local building codes, or the presence of illegal or

unpermitted structures, additions, or alterations.

The City recommends that all households order their own home inspection

reports from a licensed home inspection company for his/her own protection.

The City’s inspection report should not be used by the buyer as a substitute

for a buyer’s own inspection. Further, a buyer’s home inspection may not be

used in-lieu of a City inspection completed by a Housing Department


For homes that do not meet the City’s property condition requirements, the

household may qualify for a City Home Repair Loan for up to $15,000 to

repair the property after the close of escrow. Contact the Homebuyer Staff

for details.
3. Maximum Sales Price
All Lenders must provide an appraisal, from a state licensed

certified appraiser, of the fair market value of the home using the

sales comparison method. The sales price of the home may not

exceed the appraised value. The City’s loan-to-value (LTV),

combined-loan-to-value (CLTV), and other qualifying ratios will

be based on the lesser of the sales price or appraised value.
C. Additional Requirements
The City’s homebuyer programs are a “one-time” benefit per

household. A household cannot have previously received

assistance from the City’s homebuyer programs.
Any household that has been denied or determined ineligible for

any of the City of San Jose Homeownership program, may not

reapply for six months.
Homebuyer Program Guidelines Page 21 of 27

The Housing Department discourages layering of other outside

sources of funding so that scarce down payment assistance funds

are evenly distributed among as many households as possible.

Housing Staff may approve exceptions on a case-by-case basis.
All City homebuyer program loan programs are deferred for the life

of the loan. City assistance loans are not forgivable over time and

they do not convert to grants. All City loans are expected to be

repaid on or before their maturity dates. If the value of the home

decreases after the home is purchased, the homebuyer is still

required to repay the City loan in full at maturity. Assumability of

City loans varies by program and funding sources.
All City loans are structured as deferred repayment loans with an

interest rate of 3% simple interest and a term of 30 years. There is

no prepayment penalty on any of these loans.
The City reserves the right to request additional documents from

the primary lender to verify compliance with funding source

regulations and/or these guidelines.
Co-signers are not eligible for any City Homebuyer Programs, no

The Lender Instructions submitted with loan documents are “Master

Instructions” mandated by the City of San José regarding the

Recording and Closing procedure for all City loans. Contribution of

future City funds may be suspended if escrow fails to comply with

the Master Instructions. All documents must be recorded in

sequential order as indicated in Section A-1/Recording of

Documents as stated in the Lender Instructions. The escrow officer

must sign and return a copy of the Lender Instructions, along with

the complete funding package, to the City prior to funding the City's

loan(s). Escrow must provide the Funding Package of all executed

documents 48 hours prior to Release of City Funds - (further details

located at C-1/Funding Package Compliance). If additional escrow

conditions are required and once compliance of the Lenders

Instructions has been adhered to, funds will be wired 24 hours from

the date and time of receipt and review of the last funding condition

required to fund all City loans.
No financing subordinate to the City’s loan may have a balloon,

deferred, or negative amortization payment prior to 30 years. Fees

and/or charges for subordinate financing shall be consistent with

industry standards.
Homebuyer Program Guidelines Page 22 of 27

Hazard/Flood Insurance: The City requires proof of Hazard

Insurance, or a Master Insurance policy, to be provided at close of

the escrow. Fire Insurance (and flood insurance if the property is

in a FEMA designated Special Flood Hazard Area)

requirements are as follows: Households must maintain insurance

on the property in an amount at least equal to the replacement

value of the improvements; and The City must be named as an

additional loss payee on the policy.
Title Insurance: The City requires an ALTA title insurance that

includes the amount of each City loan, at close of escrow. Any

funds required to close escrow must be deposited into an escrow

account. For multiple City loans, the City will require multiple title

insurance policies on each of the subordinate second mortgages.

The City requires signed documents, and any required

documentation, to be returned to the City, in accordance with the

escrow instructions, prior to funding. Cash out of escrow, to

households, is limited to the amount deposited into escrow and not

needed for any lender-required minimum down payment. The City

will not wire any funds into private lender or broker accounts.
Borrowers can refinance for rate and term. In addition, “cash-out”

refinances are approved once every five years. Subordination

approval must be requested ahead of time.
most City loans are not assumable, refer to the Promissory Note

for details. Under no circumstances is CalHOME loan assumable.

In addition, BEGIN loans are not assumable during the five years.
A Third-Party Servicing Contractor will monitor homebuyers and

their homes to ensure adherence to the program requirements

including, but not limited to, the following:
Owner-occupancy: annual certification, BEGIN loan

requires owner-occupancy for the first 5 years only
Property tax payment

Insurance coverage

Good standing on first mortgage loan

All City loans are separately secured by a junior deed of

trust and the interest and principal payments are deferred
Homebuyer Program Guidelines Page 23 of 27

for the terms of the loans. All City loans are due payable at

the earlier of the following events:
Transfer of title (exceptions in certain hardship cases) and

sale of residence
Property ceases to be continuously occupied by the

Upon formal filing and recording of Notice of Default

(unless rescinded)
Thirty (30) years from the date of the Note depending on

the loan’s maturity date.
NOTE: Extending/modifying the loan may be possible if the payment

causes hardship to the household.
II. Application Process
1. All adult household members must complete homebuyer education class.

2. Submit a Pre-Qualification Verifications form and City Loan Application to

the City of San José.

3. City will review the pre-qualification applicant within 30 business days and

schedule an appointment. All adult household members must attend the

meeting to discuss the results of the pre-qualification.

4. Select a lender and provide the City’s prequalification approval to the


5. Upon locating a property, the lender will send a new completed application

to the City.

6. If a loan application remains in the homebuyer program for more than 90

days with no activity (e.g. conditions have not been received, no response

from lender, file has not moved forward), the loan may be cancelled by

City staff without advance notice.

7. All City Forms and letters of explanation must be signed and dated by the

Homebuyer Program Guidelines Page 24 of 27

8. Any material misrepresentations, alterations, and/or omissions from the

initial City Loan Application; including but not limited to household size,

Income and asset information, loan details, etc.., are not permissible and

will render all future re-submissions ineligible for review and approval for a

period of one year. The Homebuyer Manager may make an exception for

re-submission of a loan application only for a significant life event such as a

job/career change, marriage, divorce, or the birth of a child.
III. Annual Monitoring
Owner hereby acknowledges that City or designee is required to monitor the Home

and all affordable units under the jurisdiction of City on an annual basis to ensure

compliance with all applicable State of California and County statutes, ordinances,

and regulations. Upon the request of City, Owner shall furnish to City documents

verifying Owner’s occupancy of the Home as Owner’s principal residence, and

verifying that there have been no changes in the way title to the Home is held. Such

documents may include, but are not limited to, copies of current utility bills or

mortgage statements reflecting Owner’s name and the address of the Home.
IV. Appeals Procedure
Any applicant denied assistance from the Program has the right to appeal. The

appeal process will be carried out as set forth below:

1. Complete and submit an “Appeal Form” that clearly states the basis for

why you consider the City determination to be an error. Include any

supplemental information that would be relevant to your appeal (updated

pay stubs, tax returns, letters from employers, etc.)

2. Appeal Forms must be submitted within ten (10) calendar days from the

date of the letter notifying you of the denial.

3. Send your completed Appeal Form to:

City of San Jose Housing Department

Attention: Assistant Director, Housing Director
200 E. Santa Clara Street – 12th Floor

San Jose, CA 95113

4. The Assistant Director will review the appeal and his/her decision will be


5. You will be notified of the outcome of your appeal in writing within seven

(7) business days.
Homebuyer Program Guidelines Page 25 of 27

Appendix 1-Current Limits

2016 Income Limits for Santa Clara County *(updated annually)
California Department of Housing and Community Development Income Limits

are revised annually. Current limits can be found at:
120% (Moderate-Income) of Area Median Income:
1 person $89,950

2 persons $102,800

3 persons $115,650

4 persons $128,500

5 persons $138,800

6 persons $149,050
80% (Low-Income) of Area Median Income:

1 person $59,400

2 persons $67,900

3 persons 76,400

4 persons $84,900

5 persons $91,650

6 persons $98,450
100% of Average Area Purchase Price for

CalHome and BEGIN:
Condominiums: $665,000

Townhomes: $665,000

Single Family

*updated November 2016
Homeownership Program Guidelines Page 26 of 27

Appendix 2

City of San José Loan Application Review/Funding Process
Method of Delivery:

City staff will accept and review completed applications that are submitted by

regular postal and overnight mail, or dropped off in-person. All required

attachments noted on the loan application checklist are necessary for City

staff to fully review and determine program eligibility.

City Review Timelines:

All City loan applications are processed on a first-come, first-served basis. In

general, City staff will complete a file review and determine eligibility within

eight to ten business days from the date a completed application is received.

In the event that a household chooses to change lenders or properties after

the initial submittal, a new application package must be submitted to the City

and the household must allow up to ten business days for City review.

Incomplete applications, including those with any missing attachments, will

not be processed.

If a City loan application is cancelled or denied for any reason, the lender will

be notified of the decision by City staff within 48 hours. A formal notification

letter will be sent to the household within 30 days.

Upon City loan approval, the City may require up to an additional six business

days for preparation of loan documents and funding.

For additional or current information, please refer to the Housing

Department’s website.

The availability of the equity-share and BEGIN programs are monitored

by developers’ sales offices and City staff. Developers’ sales offices are

responsible for treating City assisted buyers in the same manner as they

serve other homebuyers.


Within three days of receipt of the City loan documents, the escrow officer

must acknowledge and sign the City instructions and return the signed

identified loan documents back to the City prior to closing.

Upon receipt of the executed City loan documents, staff will review for

completeness and accuracy. If discrepancies are noted, City staff will request

the escrow officer or lender to correct any deficiencies prior to funding and/or

Homebuyer Program Guidelines Page 27 of 27

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