REDEVELOPMENT AGENCY OF THE CITY OF COALINGA

AMENDED AND RESTATEDDOWNPAYMENT ASSISTANCE PROGRAM

GUIDELINES

AdoptedApril 17, 2008

Income Limits Updated 2008

PROGRAM SUMMARY

The Redevelopment Agency of the City of Coalinga(Agency) has established a Downpayment Assistance Program (DAP) to help low- and moderate-income households purchase homes in the City of Coalinga. DAP is funded by the City of Coalinga Redevelopment Agency, and is administered by Self-Help Enterprises (Service Provider).

In November 2007, the Agency Board of Directors adopted the original Guidelines for the DAP. On March 6, 2008 the Agency Board of Directors adopted these Amended and Restated Guidelines for the DAP to incorporate clarifying language and changes to more accurately reflect the Agency’s DAP process. These Amended and Restated Guidelines the (“Guidelines”) supersede the original DAP Guidelines and govern all activities and processes under the DAP.

The DAP loan is provided in connection with a primary loan from aLender and is secured bya second mortgage. In addition to providing for the payment of closing costs, the DAP loan may subsidize the primary mortgage to a level that producesan affordable housing cost for the Borroweras required by California Health and Safety Code Section 50052.5

To maximize the effectiveness of DAP, the Borrower pays no principal or interest on the Agency-funded loanfor a 30-year term or as long as he/she owns the home. The entire principal and interest of the DAP loan is immediately due and payable in full upon sale or transfer of the home, or at such time as the Borrower no longer occupies the home as his/her principal place of residence. Starting at the end of the 30-year deferral period, the Borroweris required to repay the DAP loan, without interest, over the following fifteen (15) years.

Priority to receive available loan funds will be given to City employees and public safety personnel.

The Agency promotes fair housing and makes all programs available to low and moderate income families regardless of age, race, color, religion, sex, national origin, sexual preference, marital status or disability.

SECTION I: APPLICANT ELIGIBILITY

  1. Income Requirements

Eligible applicants must have a gross annual household income not exceeding the limits, adjusted for household size, as shown in the table below. DAP Income Limits will be updated annually, based on the most current income limits published by the California Department of Housing and Community Development. Updated Income Limits will be deemed automatically incorporated in these Guidelines. (Please see Attachment 1, Income Calculations / Limits for details on income that must be included, and can be excluded, from income calculations.) The applicant will be required to provide income documentation.

DAP Income Limits – 2008

(Based on 120% of Area Median Income)

Household Size / 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8
Maximum Gross Annual Income / $45,200 / $51,700 / $58,100 / $64,600 / $69,800 / $74,900 / $80,100 / $85,300

For households with more than 8 members, higher income limits apply.

Adopted Restated Guidelines as of March 20, 2008 1

B. DAP Homebuyer Requirements

Applicant(s) and/or their spouse(s) must be income eligible under Section A.

Applicant must need the assistance of DAP to obtain home ownership. Need will be determined as stated herein, and shall be based on Program procedures, requirements of the Lender, and the ability of the household to meet such requirements.

  1. Principal Residence
  1. Borrower must occupy the residential property purchased with the DAP loan as his/herprincipal residence. Lender must obtain from Borrower, a statement of intent to use the residence as his/her principal residence. Borrower must notify the Agency if the residence ceases to be his/her principal residence. In no case will the “renting out” of a home purchased with the assistance of a DAP loan be allowed. If Borrower converts the property to a rental unit, or any commercial or non-residential use, the loan is immediately due and payable.
  1. Borrowerwill be required to submit the following itemsto the Agency between January 1st and 15th of each year for the term of the loan:
  1. Proof of occupancy in the form of a copy of current utility bill.
  1. Statement of unit’s continued use as the Borrower’s principal residence.

Failure to comply with this requirement shall constitute a Default under the terms of the loan.

  1. In the event that aBorrowersells or transfers title of the purchased property for any reason, the loan is immediatelydue and payable.

SECTION II: PROPERTYELIGIBILITY

  1. Dwelling Type and Location

Eligible properties include any detached single-family home, condominium, townhouse unit, or manufactured home located within the City of Coalinga.

  1. Purchase Cannot Displace a Permanent Tenant

A home eligible for purchase under DAP must be vacant or owner-occupied at the time of sale, unless the Borrower is an existing tenant wishing to purchase his/her place of residence. If a property is occupied by a permanent tenant at the time of sale, and the sale of the residential property would causethe displacement of that tenant, that property is not eligible for purchase with DAP funds. A rental unit that previously contained a permanent tenant must be vacant for at least three months prior to its purchase before it can be considered eligible. The seller of a rental home must certify to such in writingbefore the close of escrow. A permanent tenant may purchase a home he/she is currently occupying provided the property meets the other eligibility requirements in this Section.

  1. Eligible Homes Must Meet Local and State Code Standards

Properties purchased with the assistance of DAP must comply with state and local building, health and safety code standards. If the property cannot be brought into compliance prior to the close of escrow, it shall not be purchased with DAP funds.

  1. Lead-Based Paint Certification

In accordance with federal regulations and the Agency’s policy regarding the identification and abatement of lead-based paint hazards in housing assisted with public funds, each residential property purchased through DAP that was constructed or manufactured before 1978 must be inspected for lead-based paint hazards. If lead-containingpaint surfaces are found, they must be properly remediated by the seller before close of escrow.

  1. Unit Size

Unit size shall be sufficient to meet the needs of the purchaser household without overcrowding. Generally, this means not more than two persons per bedroom or living room. Exceptions may be made to accommodate numerous immediate family members.

  1. Purchase Price

Purchase price shall not exceed the FHA 203(b) limit for FresnoCounty as updated by HUD, which is $289,750 or 95% of the area median purchase price as established by comparable sales or information provided by the California Real Estate Association.

SECTION III: FINANCE REQUIREMENTS

  1. New Mortgage Requirements
  1. A DAP loan can only be issued in conjunction with a new first mortgage loan. The primary lender (Lender) must supply a statement to the Agency’s Service Provider to the effect that the first mortgage is a new mortgage, and is not the assumption of an existing mortgage.
  1. Primary loans shall be at a fixed interest rate, for a term not less than 30 years. “Buy-downs” and variable interest rate loans shall not be permitted.
  1. Interest rates, points and Lender fees and costs shall be reasonable within the marketplace, as determined by the Agency.
  1. Primary loans shall be repayable at any time with no prepayment penalty.
  1. Loan Approval
  1. All primary loans in connection with the DAP must be approved by Lender. If the applicant fails to qualify for the primary loan, he/she is not eligible to be a participant in DAP.
  1. Lender will forward its approval and required documents to the Agency’s Service Provider for review and presentation to the Agency’s Loan Committee.
  1. In order to obtain DAP financing, applicants must meet all property and eligibility guidelines in effect at the time of loan approval.
  1. All DAP loan applications, when complete, will be submitted to the Agency’s Loan Committee for review and approval or denial. Applicants will be provided written notification of approval or denial.
  1. All DAPloans shall be evidenced by a promissory note, loan agreement, andaffordability covenant and shall be secured bya recorded deed of trust on the purchased property, with Lender request for notice of default, subordinate only to the deed of trust securingthe loan of the primary.
  1. Amount of DAP Loan

The maximum amount of the DAP loan is $65,000 per homebuyer.

Lenders should use the following guidelines when structuring the amounts of the first mortgage loan, downpayment and DAPloan:

  1. The Borrowershall provide personal funds equal to one percent (1%) of the purchase price of the home selected, as a down payment.
  1. Except for the requirement stated above, the Borrower may exempt savings equal to 20% of annual gross income from the purchase transaction. The balance of the Borrowerfunds available shall be used in the following order:
  1. To the extent possible, after satisfying 1. and 1a., above, the Borrower’s funds shall be used for the loan origination fee; discount points; appraisal fee; credit report(s); customary buyer closing costs; the buyer’s customary portion of escrow fees; title insurance; and, the establishment of impound accounts for property taxes and insurance.
  1. After 1a. and 1b. above are satisfied, any balance of the Borrower’s funds shall be applied to the down payment.
  1. If the items in 1b. above cannot be satisfied with the Borrower’s funds, the Agency may provide up to $3,000 assistance to cover the remaining balance of the 1b. items.

e.The loan-to-value ratio for a DAPloan, when combined with all other indebtedness to be secured by the property, shall not exceed 100 percent of the sales price plus a maximum of up to 5 percent of the sales price to cover actual closing costs.

  1. The Agency may subsidizeup to 49% of the Lender loan for low and moderate-income homebuyers, but not more than the maximum stated above.

The monthly payment for the primary loan will not exceed an affordable housing cost pursuant to Section 50052.5 of the California Health and Safety Code.The actual amount of a Borrower’s DAP loansubsidy shall be computed according to the housing ratio parameters specified in item F “Affordable Housing Costs” below. Borrowers shall receive only the subsidy needed to allow them to become homeowners (“the Gap”) while keeping their housing costs affordable. The primary Lender will use the “front-end ratio” of housing-expense-to-income to determine the amount of the primary loan and, ultimately, the DAP loansubsidy amount required, bridging the Gap between the purchase price (less down payment) and the amount of the primary loan.

3.Primary loans underwritten by FHA, USDA Rural Development, Fannie Mae, Freddie Mac, or CalHFA will be acceptable to establish creditworthiness, repayment ability, and dependability of income.

The front-end ratio shall be between 25% and 35% and is the percentage of a Borrower’s gross monthly income (before deductions) that would cover the cost of PITI (loan principal and interest payment + property taxes + property insurance).

The back-end ratio shall be between 25% and 42% and is the percentage of a Borrower’s gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt. Note: Qualifying ratio guidelines can be somewhat flexible depending on the loan-to-value ratios. The higher the LTV, the more conservative the ratios should be. A qualifying ratio higher than the guidelines may be acceptable if there are compensating factors. Some examples of compensating factors are: 1) the prospective homebuyer has successfully demonstrated over a minimum 12-month period the ability to pay housing costs equal to or greater than the proposed monthly housing costs for the home to be purchased; 2) the prospective homebuyer is a limited user of credit and they show a history of being able to save money; 3) there will be no more than a 5% increase in the prospective homebuyer’s housing expense.

  1. Loan Terms

1.The DAP loan is a zero percent (0%) interest/30-year deferred loan, meaning no monthly payments are required for 30years, except as otherwise provided in item 2 below.

At the end of the 30-year deferral period, the Borrowershall be required to begin repayment of the DAP loan, which will be amortized over 15 yearsat no additional interest, since this is typically when one would expect that the first mortgage loanhas been paid in full.

  1. The DAPloanshall be due and payable in full immediatelyupon the earlier occurrence of any of the following events:
  1. Upon the sale or transfer of the property. For purposes of this section, a sale or transfer shall be defined as any sale, assignment, or transfer, voluntary or involuntary of any interest in the property, including but not limited to: a fee simple interest, a joint tenancy interest, a life estate, a leasehold interest, creation of a trustor an interest evidenced by a land contract by which possession of the property is transferred and Borrower retains title, except transfer by gifts, devise, or inheritance to an existing spouse surviving joint tenant, or a spouse as part of a dissolution proceeding, or in connection with marriage, or by devise or inheritance to children, or in connection with creation of a revocable family trust, provided that such transferee agrees to assume the obligations of transferor.
  1. If a Borrower converts the property to a rental unit, or any commercial or othernon-residential use.
  1. Upon default under the note, loan agreement and/or deed of trust, or the affordability covenant.
  1. Upon theBorrower’s refinance of the lien of the first mortgage loansuperior to that of the deed of trust securing the DAP loan for purposes other than reducing the interest rate and/or the Borrower’s payments on the first mortgage loan. (See paragraph H below.)
  1. Shared Appreciation

In addition to repayment in full of the DAP loan, the Borrower shall pay the Agency a “shared appreciation” amount if the property is sold or transferred during the first 10 years of the DAP loan term to a party who does not meet the requirements of the affordability covenant under the Guidelines and if the property is to be released from the affordability covenant. The shared appreciation amount shall be paid from the proceeds of the sale or transfer.

Shared appreciation is calculated as a pro rata share of the equity appreciation of the home. This pro rata share is based on the length of occupancy.

Sale after Year
# / Appreciation to Owner / Appreciation to Agency
1 / 100% / 0%
2 / 50% / 50%
3 / 55% / 45%
4 / 60% / 40%
5 / 65% / 35%
6 / 70% / 30%
7 / 75% / 25%
8 / 80% / 20%
9 / 90% / 10%
10 / 100% / 0%

The value of significant capital improvements by the Borroweris deducted when calculating equity appreciation. Thus, if the Borrower sells the home after the second year, the Agency would share in 50% of the equity appreciation after the value of significant Borrower capital improvements have been deducted.

Example of Shared Appreciation Loan Repayment

In this example, a home was purchased for $200,000 with a DAP loan of $50,000. The homeowners make capital improvements with a value of $25,000. Two years later the owners sell the home for $325,000. The shared appreciation they will owe the Agency on their loan, in addition to the principal amount of $50,000, is calculated below:

Selling Price$325,000

Less Original Purchase Price-200,000

Appreciation Amount$125,000

Less Owner Improvements of $25,000-25,000

Shared Appreciation$100,000

Agency’s Share after Year 2($100,000 x 50%) $50,000

Plus Agency's Loan+ 50,000

Total Owed to Agency$100,000

In all instances of sale or transfer, the proposed sales price or transfer value must first be approved by the Agency. If the proposed sales price or transfer value equals or exceeds the reasonable market value of the property under then-current real estate market conditions, such approval shall not be unreasonably withheld. Should the Agency withhold approval of the proposed sales price or transfer value, the Agency in its sole discretion may establish a reasonable market value for the sale or transfer; such value to be established through an appraisal or other means reasonably acceptable to the Agency and the Borrower.

At the time the DAP loan is repaid pursuant to this paragraph E, the Borrower shall repay theprincipal balanceon the DAP loan together with the shared appreciation on the sale or transfer. After these obligations have been paid, the Borroweris entitled to any excess in sales proceeds, subject to the rights of holders of any other liens on the property, and a recordable document releasing the property from the affordability covenant.

  1. Affordable Housing Cost

In accordance with State limits for low- and moderate-income housing funds used by theAgency in Section 50052.5 of the California Health and Safety Code, the Borrower’s monthly housing costs (principal, interest, taxes, and insurance) shall not exceed the following guidelines:

  1. “Very Low-Income” Borrowers (less than 50 percent of area median income):

For very low-income households whose gross incomes do not exceed 50 percent of the area median income adjusted for family size, the monthly housing cost shall not exceed the product of 30 percent times 50 percent of the area median income adjusted for family size.

  1. “Lower Income” Borrowers (between 50 percent and 80 percent of median income):

For lower-income households whose gross incomes do not exceed 70 percent of the area median income adjusted for family size, the monthly housing cost shall not exceed the product of 30 percent times 70 percent of the area median income adjusted for family size. For lower-income households whose gross incomes are equal to or exceed 70 percent, it is the Agency's option to require that the affordable housing cost not exceed 30 percent of the gross income of the household.

  1. “Moderate Income” Borrowers (between 80% and 120% of median income):

For moderate-income households, affordable housing cost shall not be less than 28 percent of the gross income of the household, nor exceed the product of 35 percent times 110 percent of the area median income adjusted for family size. For moderate-income households with a gross income that exceeds 110 percent of the area median adjusted for family size, it is the Agency's option to require that the affordable housing cost not exceed 35 percent of the gross income of the household.