Lot­tery a chance to buy home in S.F.

San Francisco Chronicle - - BUSINESS REPORT - KATH­LEEN PENDER

Low- and mid­dlein­come home buy­ers who en­ter a lot­tery this month could win up to $375,000 to­ward the pur­chase of a house or condo in San Fran­cisco. The catch: When they sell the home, they must re­pay the as­sis­tance plus a pro­rated share of any ap­pre­ci­a­tion.

The dead­line for en­ter­ing the city’s Down­pay­ment Loan As­sis­tance Pro­gram is July 31, but en­trants must first take a home buyer ed­u­ca­tion work­shop and get pre­qual­i­fied for a mort­gage from a par­tic­i­pat­ing lender.

They can­not have owned a home in the past three years and can’t make more than 175 per­cent of the area’s me­dian in­come for their house­hold size. A oneper­son house­hold, for ex­am­ple, could earn up to $145,100 while a four-per­son one could make up to $207,200.

It’s one of the few gov­ern­ment hous­ing pro­grams open to the “missing mid­dle,” peo­ple who earn too much to qual­ify for a be­low-mar­ket-rate home and too lit­tle to af­ford a mar­ket-rate one.

“I un­der­stand why cities like San Fran­cisco do this. It is im­por­tant to keep the mid­dle class, the cen­tral work­force, teach­ers, in your city,” said Carol Galante, director of UC Berke­ley’s Terner Cen­ter for Hous­ing In­no­va­tion. “Home­own­er­ship is the best in­oc­u­la­tion against dis­place­ment and gen­tri­fi­ca­tion in these neigh­bor­hoods.”

Buy­ers don’t have to live in San Fran­cisco to en­ter the lot­tery, but they have to pur­chase a mar­ket-rate home in the city

and live in it. They must put up at least 5 per­cent of the pur­chase price and get a mort­gage for at least half the pur­chase price. They can’t buy a home that has more bed­rooms than they have fam­ily mem­bers, but there is no limit on the price.

The down-pay­ment as­sis­tance is a no-in­ter­est, 30-year loan that re­quires no monthly pay­ments. It’s due when the owner sells, moves, trans­fers ti­tle or de­cides to re­pay it. At that point, the owner pays the orig­i­nal loan amount and a pro­por­tion­ate share of any in­crease in the home’s value (de­ter­mined by the sales price or an ap­praisal).

A buyer who bor­rowed $333,000 from the pro­gram to buy a $1 mil­lion home would owe onethird of any ap­pre­ci­a­tion be­cause the loan was one-third of the pur­chase price. If they later sold it for $1.5 mil­lion, they’d owe the city $500,000 —the orig­i­nal $333,000 plus a third of the gain.

The city has $15.2 mil­lion avail­able this year, which could fund at least 40 loans. Last year, it had about $10 mil­lion avail­able and funded 26 loans, with four more pend­ing. The pro­gram re­ceived about 200 ap­pli­ca­tions, so the odds of win­ning were al­most 7-1 — much bet­ter than other city hous­ing pro­grams.

The me­dian in­come of those us­ing the pro­gram last year was $130,000 and the me­dian pur­chase price was about $850,000, said Maria Ben­jamin, a director with the Mayor’s Of­fice of Hous­ing. Most of the homes were pur­chased in Dis­tricts 10 and 11, the city’s south­east­ern cor­ner. When loans are re­paid, that money goes back into the loan pool.

This year’s lot­tery re­sults will be posted Aug. 31; af­ter that the city will be­gin no­ti­fy­ing win­ners. Once no­ti­fied, buy­ers gen­er­ally have 90 days to get into con­tract on a home. If they can’t, their money will be opened to the next per­son in line.

Adam and Lau­ren West en­tered the lot­tery last year and when their num­ber was pulled early, they im­me­di­ately started house hunt­ing. By the time the city con­tacted them a few weeks later, they had al­ready found a house in the Outer Sun­set and had an of­fer ac­cepted two days later. The cou­ple used the $375,000 from the city, along with their own sav­ings, to put down half the pur­chase price.

Lau­ren is a pro­fes­sional or­ga­nizer and Adam works for a women’s health non­profit. With­out this help, there is no way the cou­ple could have bought a home in San Fran­cisco, where the me­dian price is around $1.3 mil­lion.

“We wouldn’t be able to stay in the city if we didn’t buy a home,” Adam said. “We were in a sin­gle­fam­ily home in the Sun­set, not rent-con­trolled. Even­tu­ally we would have been priced out.” Their mort­gage pay­ment “is not much more than we were pay­ing in rent.”

When they sell the home, for which they paid just over $1 mil­lion, they’ll owe $375,000 plus about 35 per­cent of any ap­pre­ci­a­tion. Adam feels OK about that now. “You are kind of pay­ing it for­ward,” he said. “Maybe at the time I’ll feel not so happy about it.”

Of the fund­ing, $2.2 mil­lion is re­served for San Fran­cisco Uni­fied School District ed­u­ca­tors and first re­spon­ders, who can make up to 200 per­cent of me­dian in­come.

The pro­gram charges a non­re­fund­able fee of $619 once a lot­tery win­ner has been no­ti­fied and moves ahead.

Santa Clara County plans to launch a sim­i­lar pro­gram for first-time buy­ers this fall. Hous­ing Trust Sil­i­con Val­ley will ad­min­is­ter the new pro­gram. The trust, a non­profit or­ga­ni­za­tion, is al­ready of­fer­ing a de­ferred loan down pay­ment pro­gram for some buy­ers in Santa Clara County, Menlo Park and East Palo Alto.

Un­der a statewide pro­gram open year round, the Cal­i­for­nia Hous­ing Fi­nance Agency of­fers de­ferred loans for down pay­ments up to 3.5 per­cent of the pur­chase price, but the price can’t ex­ceed $705,000. The in­come lim­its, though, are high — $228,300 re­gard­less of fam­ily size in San Fran­cisco. The My­Home As­sis­tance loan must be paired with a first mort­gage from the agency.

On the for-profit front, two San Fran­cisco com­pa­nies — Uni­son and Landed — have shared ap­pre­ci­a­tion down-pay­ment prod­ucts funded by in­vestors. Theirs have no in­come lim­its, but buy­ers still must get a mort­gage from a par­tic­i­pat­ing lender. They take a big­ger slice of the home’s ap­pre­ci­a­tion than the San Fran­cisco pro­gram, but will also share in any de­pre­ci­a­tion, which the city will not do.

Uni­son typ­i­cally pro­vides 10 per­cent of the pur­chase price; the buyer puts down 10 per­cent and borrows 80 per­cent. Uni­son’s in­vest­ment comes due when the home is sold or re­fi­nanced or af­ter 30 years. At that point the buyer pays Uni­son its orig­i­nal in­vest­ment plus or mi­nus 35 per­cent of the home’s ap­pre­ci­a­tion or de­pre­ci­a­tion. If the home has lost value, the owner re­pays less than Uni­son’s orig­i­nal in­vest­ment. The buyer can also buy out Uni­son af­ter three years.

Al­ter­na­tively, Uni­son will pro­vide 15 per­cent of the pur­chase price in ex­change for 52 per­cent of any ap­pre­ci­a­tion or de­pre­ci­a­tion.

By com­par­i­son, if San Fran­cisco pro­vided 10 per­cent of the pur­chase price, it would take only 10 per­cent of any fu­ture ap­pre­ci­a­tion, but it won’t take a hit if the home price drops.

Uni­son also charges a setup fee equal to 2.5 per­cent of the down pay­ment it pro­vides, or $2,500 on a $100,000 in­vest­ment.

Landed has a sim­i­lar pro­gram for teach­ers and other em­ploy­ees of par­tic­i­pat­ing pub­lic school dis­tricts. To “par­tic­i­pate,” the district only has to an­nounce the pro­gram to em­ploy­ees and let Landed give them a sales pitch, usu­ally on cam­pus af­ter school hours.

Buy­ers must put down at least 10 per­cent. If Landed pro­vides an­other 10 per­cent, it takes 25 per­cent of any ap­pre­ci­a­tion or de­pre­ci­a­tion. Buy­ers pay no orig­i­na­tion fee if they use a Landed part­ner real es­tate agent, who pays Landed a fee. If buy­ers use their own agent, that agent must pay Landed the same fee, which the com­pany would not dis­close.

Landed co-founder Jesse Vaughan said it has com­pleted 90 trans­ac­tions, most in the Bay Area.

Liz Moughon / The Chron­i­cle

Adam and Lau­ren West and their son, Jack­son, 7, eat din­ner at the home in San Fran­cisco they bought through a down-pay­ment as­sis­tance pro­gram.

Liz Moughon / The Chron­i­cle

Adam West and son Jack­son kick a soc­cer ball in the back­yard of the home the fam­ily bought un­der a pro­gram run through a lot­tery. The dead­line is July 31.

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