• Successful homebuyer programs have income requirements that are high enough to attract a broad range of potential applicants. This has been especially true in the Bay Area, where high home prices have meant that many lower-income households will have a difficult time purchasing a home, even with substantial assistance from the local jurisdiction.
• Most homebuyer programs have favorable interest rates and flexible terms. For example, many programs defer payments for some period of time while the new homeowner adjusts to the routine of making monthly mortgage payments.
• Most programs offer loan amounts that are high enough to create real leverage in buying a home. For example, since a major obstacle to first time homebuyers has been the substantial down payment that is often required, successful programs will provide maximum loan amounts that can make a sizable "dent" in the down payment, or that can help buy down the overall cost of the first mortgage.
• While some jurisdictions have placed specific dollar limits on the purchase price of an eligible home, most jurisdictions instead opt for allowing the homebuyer to purchase whatever he or she is able to afford, according to the underwriting criteria of the participating lenders.
• Lenders are generally pre-selected to offer first loans to new homebuyers.

Based on the research undertaken, those jurisdictions that do specifically target teachers and/or public service employees have program parameters that do not meet the City of Sunnyvale’s needs in terms of loan amount, loan terms, return on investment, and similar factors. A brief summary follows.

1. Maximum loan amount of $50,000. Jurisdictions with the most successful programs have found that the loan amounts have to be high enough to make a sizeable impact on the down payment and/or the overall purchase price.
2. Maximum income 120% of median. Setting the criteria at 120% of median, rather than just 100% of median or below will allow a broader pool of potential applicants and will allow the City to assist a wider range of eligible borrowers.
3. Borrowers may not have owned a primary residence in Santa Clara County during the last three years. Applicants would be allowed to have owned a primary residence in locations outside of Santa Clara County. This provision serves as a means to recruit teachers or public employees from outside the area.
4. Borrowers may purchase a home within the following Cities: Sunnyvale, Cupertino, Santa Clara, Saratoga, Los Altos, Mountain View, and San Jose (includes Alviso).
5. Home must be owner-occupied. The borrower may not rent out the unit to others; the subject property must be the borrower’s primary residence.
6. No maximum purchase price; price to be determined by what the borrower is able to afford. It is assumed that lenders will qualify borrowers for a first loan that establishes the affordable housing price in a ratio of 35% to 40% of the borrower’s gross household income to housing cost and debt, which is the standard in the private market.
7. Interest rate of 5.5%, fully amortized but with deferred payments until the fifth year of the loan. This provision allows the borrower to become accustomed to monthly mortgage payments for a period of five years before payments on the City loan commence. The interest rate is equal to the current return earned on fund accounts. Interest accrual during the five year deferral period will be determined on a sliding scale of 0%-5.5% depending on the borrower’s need to increase their housing cost to income ratio so they may qualify for the first loan. The monthly payment beginning in year six to amortize a $50,000 City loan over the next twenty-five years will be $392 per month. This is equal to an additional 12% increase compared to the estimated average initial monthly payment.
8. Maximum Loan-to-Value ratio of 95%; borrower must be able to contribute up to 5% down payment. Although the City may request borrowers contribute a full 5% to the down payment, some flexibility should be allowed for certain situations where the down payment is simply too large for the borrower to contribute. At a minimum, borrowers should be expected to contribute 3% to cover closing costs, etc.
9. Total loan term of 30 years. This is a standard term for the City’s loans.
10. Equity share provisions, up to the first ten years of ownership.  Staff suggests that the City include some equity share provisions, should a borrower substantially default on the loan – say, if the borrower rents out the subject property contrary to the terms of the loan or if sold within the first five years. This is meant to act as a deterrent to an early sale to generate "windfall" profits.

The City will include decreasing equity share rights if the borrower sells the subject property between year five and year ten of the loan term. In this way, the equity share provisions would be an inducement to the borrower to remain in the program for as long as possible. The terms may include waiver of the equity share if transfer is made to an income eligible household, if the sale is due to hardship, or due to involuntary termination of employment. The following is an example of the proposed equity share formula:

Original Purchase Price = $450,000 City Loan = $50,000 = 11% equity share.

Years held before resale	% Equity Share	Gross Proceeds	Due City
One to Five Years	11%x200= 22%	$40,000	$8,800
Sixth Year	11%x180= 19.8%	$40,000	$7,920
Seventh Year	11%x160= 17.6%	$40,000	$7,040
Eight Year	11%x140= 15.4%	$40,000	$6,160
Nine Year	11%x120= 13.2%	$40,000	$5,280
Ten Year	11%x100= 11%	$40,000	$4,400

11. Borrower must be either:
1. Employee (permanent, full-time) employed by a school district serving Sunnyvale and assigned to a school where the majority of students are residents of Sunnyvale; or
2. Full time (permanent) public employee of City of Sunnyvale.
3. Qualified child care provider who is working at State-licensed childcare center located within the City of Sunnyvale or childcare centers for school-aged children operated by a school district within the City of Sunnyvale who meet the income criteria. The teacher must be qualified to teach under State Title 22 requirements.
12. City Employees, school district employees and qualified child care providers must have successfully completed their probationary period before being eligible for a loan in this program.
13. The City will pre-qualify and maintain a list of lenders to work in this program, and borrowers may obtain their first loans only through this list. The City has begun developing a list of potential lenders, using information gleaned from other programs such as the County’s now-defunct CASA program, the Housing Trust Fund, the City of San José’s Teacher Homebuyer Program and the San Francisco Workforce Initiative. Staff will undertake a formal solicitation process, during the next month, to meet with and select lenders whose loan products will work well with the City’s Down Payment Loan Program.