CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
LOAN UNDERWRITNG GUIDELINES
Part II:
Applicant Thresholds
Borrower
Qualification/Disqualification
x Owner of property
x Property is the primary residence at the time of application x No maximum income limit for borrower
x Only one loan per borrower through the Affordable ADU Loan Program
Part II:
Eligibility
Eligible Properties x Single dwelling unit or duplex property located in Foster City x Only one loan per property through the Affordable ADU Loan Program
x Have commitments for the remainder of the funds needed for construction but not more than two other loans on the property (including a mortgage) and a loan-to-value that is no higher than 90% for all loans (including Affordable ADU loan) Project Requirements x Be working with an experienced ADU professional (ADU consultant, builder with previous ADU experience of at least three (3) years, or another qualified professional); all contractors must be licensed in California.
x The ADU cannot result in displacing any tenant currently residing on the property.
Eligible Uses of Funds x Construction of a new legal and feasible ADU (including lot maximums, zoning, permitting, and any other requirements) x Construction may be a detached ADU, conversion ADU, or JADU
x Eligible costs include:
o Construction materials and labor
o General contractor fees and overhead, not to exceed
10% of the total project cost.
o Demolition necessary for the construction of an ADU
o Site work, such as water/sewer/septic connections, utility improvements, or site leveling as is necessary for the
construction of an ADU
o Permit costs beyond those that are waived through
participation in this Program
o Other hard or soft costs approved at the discretion of the City
Ineligible Projects/Uses of
Funds
x Legalization of an existing ADU
x The City will determine, in its sole discretion, costs deemed excessive or unreasonable, or uses deemed ineligible.
Ineligible uses of funding include, but are not limited to, costs
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
associated with construction items or materials of a luxury nature or furnishings.
Part III:
ADU Requirements
Rent Restriction x Ensure rent does not exceed the California Department Housing and Community Development Multifamily Tax
Subsidy Project (MTSP) rent limits for a tenant at 60% of Area Median Income (AMI) in the corresponding sized rental unit for low income units or 30% of AMI using MTSP HERA Special income limits for extremely low income units, or rent limits for Housing Choice Voucher is renting to a voucher holder . x Rent increases are allowed, subject to MTSP rent limits and State and local regulations regarding rent increases.
Minimum lease term x 12 months
Lease x Lease to include notifications to tenant of length of affordability restriction
x Lease to include notifications to tenant of ongoing tenant obligations, such as annual recertification
Ongoing Obligations x Complete income qualification verification of Tenant through a City-authorized company or organization, or the city. Ensure that Tenant occupying the unit meets the income;
certification of income must follow the City’s BMR
Administrative Procedures and Guideline requirements and provide proof of qualification and lease to the City.
x Complete and submit annual recertifications of tenant qualifications. The City shall have the right to audit tenant files and complete annual unit inspections subject to state notice regulations.
x Submit documentation of completion of fair housing training as required.
x Notify City of any of the following:
o New tenant with new income verification or voucher
o Lease extension or new leases with current tenants
o Annual compliance recertification audits
o Tenant notification to move out
o Current tenants’ income exceeds 60% of Area Median
Income for low income units or 30% of Area Median
Income for very low income units.
o Notice to pay or quit or eviction notice issued to tenant o Change in tenant’s voucher status
o Changes in property management providers and
homeowner contact information
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
x Repay the loan with any accrued interest at the time of a qualifying repayment event or upon Owner’s decision to exit the program.
x Maintain hazard insurance that names the City as loss payee annually for the term of the loan.
x Borrower shall keep all buildings located on the Property insured against loss by fire, vandalism, and malicious mischief by a policy of standard fire and extended all-risk insurance annually for the term of the loan. The policy shall be written on a full replacement value basis and shall name Beneficiary as loss payee as its interest may appear. The full replacement value of the Accessory Dwelling Unit to be insured shall be determined by the company issuing the policy at the time the policy is initially obtained. Not more frequently than once every two (2) years, the City shall have the right to notify the other borrower that it elects to have the replacement value redetermined by the insurance company. Subject to the
rights of any senior lienholder, the proceeds collected under any insurance policy may be applied by Beneficiary to any indebtedness secured hereby and in such order as
Beneficiary may determine, or at the option of Beneficiary, the entire amount so collected or any part thereof may be released to Borrower; provided however, if Borrower is not in default under the Loan Documents, the proceeds shall be released to Borrower to repair or rebuild the Improvements provided that sufficient additional sources of financing to complete such repair or rebuilding are available to complete such work. Such application or release shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice.
x Adhere to Fair Housing regulations and complete Fair Housing training prior to execution of the first lease and every three (3) years thereafter. The City will post links to Fair Housing Training on the City’s website. Training is available at no cost through the State of California Civil Rights
Department
Tenant Household Obligations x Tenant household income at initial occupancy does not exceed the MTSP HERA Special Income limits for the
household size at 60% AMI for low income or 30% AMI for extremely low-income units.
x Tenant must agree to annual recertification of household income.
x In the event that the household is over the income limit upon recertification, the tenant may remain in the unit provided
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
that the household income is under 70% of AMI income limit using MTSP HERA Special Income limits, adjusted for
household size, for low income units, and 40% of AMI income limit using MTSP HERA Special Income limits, adjusted for household size, for extremely low income units and upon the next subsequent annual recertification the household is under 60% of AMI using MTSP HERA Special income limits for low income units and 30% of AMI using MTSP HERA Special Income limits for extremely low income units. If an extremely low-income household continues to be over the income limit 30% of AMI, the household will graduate to a low-income household and the remaining loan payments will be adjusted to the higher interest rate. If a low-income household
continues to be over the income limit (60% of AMI), the Homeowner shall have the right to terminate the lease due to non-qualification provided the homeowner gives the
tenant at least ninety (90) days’ notice and adheres to any additional required provisions of the City of Foster City’s Anti- Displacement Strategy and any applicable local, state, or federal anti-displacement regulations. The City will also classify the tenant as priority 1A for applying to other BMR properties. The vacated unit must be rented to a qualified extremely low income or low-income household within 90
days of vacancy to remain in the program.
x Tenant household size does not exceed maximum occupancy limits.
x Tenant household may use a Housing Choice Voucher.
x Family members are allowed to occupy the ADU if they are otherwise qualified and added to the lease.
x Homeowner is allowed to occupy the ADU if they are
otherwise qualified.
Part IIV:
Key Loan Terms
Loan Amount x $100,000 or the total cost of construction, whichever is less.
Affordability Term x 10 years with option to extend in 5-year increments after the initial term up to a total of 30 years, including extensions. x Affordability is included in a recorded covenant that runs with the property until the end of the term or the loan is repaid, whichever occurs first
Loan Term x 10 years, with option to extend in 5-year increments up to 30 years total, combined with extension(s) of the affordability term
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
Interest Rate x 0% for extremely low income ADUs and 3% for low income ADUs, simple interest, deferred.
Payments x No monthly payments
x Lump sum due at qualifying repayment event, including accrued interest
Repayment events x Change in property title.
x If the property is no longer owner-occupied.
x At the end of the loan term, unless a new 5-year extension of affordability covenant is executed.
x The lot is split.
x The ADU is no longer approved for occupancy.
x If the ADU is no longer rented to a Qualified Tenant for 90 or more days.
x Borrower’s breach of any other provisions of the Loan Documents that remains uncured.
Subordination x Yes, to primary mortgage and home equity loan/line of credit (other situations subject to written approval by the City).
Qualified Tenant x Household income is equal or lesser than 60% of Area Median Income (AMI), adjusted for unit size
x Household size does not exceed occupancy limits for the size of unit (2/bedroom plus 1)
Sale of Loan x The City retains the right to sell the loan.
Completion of ADU x ADU is required to be completed within 24 months of loan approval.
Part VV:
SSelection/Execution Proceess
Interest List, Waitlist, and
Preferences
Any Foster City homeowner can apply to the interest list. Loan applications are due March 1, June 1, September 1, and December 1 of each year. Homeowners on the interest list will be invited to apply by the deadline will be sorted by preference as listed on their application:
1. First Priority: Applicants who commit to building a mobility accessible ADU and rent the unit to a tenant with a disability. (See standards listed below.)
2. Second Priority: applicants who meet one or more of the following criteria:
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
a. The proposed ADU is located in census tract with geographic targeting for disabilities (6080.25 or 6083) or renter cost burden (6080.13 or 6080.23);
b. The applicant commits to rent to a tenant in one or more of the following preference categories:
o A Section 8 Voucher holder;
o A veteran of the US Armed Forces;
o Someone with a disability;
o A senior, aged 62 or over;
o A teacher or employee of a public elementary, high
school, junior college, or university;
o A tenant found through HIP Housing’s Home Sharing
Program
3. Third Priority: Project Readiness: preference will be given to those projects already in construction
4. Fourth Priority: All other qualified applicants.
Review of Applications Applications will be sorted by preference and randomized within each category to create a waitlist. Applications will be processed in waitlist order by preference. The City will issue a maximum of five (5) loans per quarter, provided funding is available. Applicants that are not selected will remain on the waitlist for the next quarter. The applicant is responsible for maintaining current contact information.
Pre-Application Steps Pre-application Steps:
1. Schedule a Feasibility Consultation with a City-authorized advisor .
During this consultation, homeowners will meet with an ADU expert 1:1 at the property or virtually (homeowner preference) and receive a customized written ADU feasibility report. Consult is provided at no-cost to homeowners interested in applying for the ADU Loan Program.
Application Steps Application Steps: upon sele ction of an application, applicant shall:
1. Upon completion of the Feasibility Consultation, homeowner will apply and submit request for funding, execute an intent to commit to a ten-year affordability covenant on the ADU, and upload the feasibility consult report and project budget.
2. City staff will review and provide pre-approval authorization, reserving available Loan funds for the individual project for a period of 90 days.
CITY OF FOSTER CITY
BBELOW MARKET RATE ACCESSORY DWELLING UNIT LOAN PROGRAM
UNDERWRITING GUIDELINES
3. During the 90-day Pre-Approval period, homeowner shall secure all project financing, establish a Managed Construction Escrow Account.
4. Homeowners will also have access to no-cost “office hours” with a Technical Assistance advisor to answer any questions about their ADU project.
Approval Steps Approval Steps:
1. Loan manager shall verify preference and ensure application is complete.
2. Once project financing, Managed Construction Escrow Services are complete, homeowner will submit evidence via the online application system.
3. City staff will review all documents and provide final approval on the ADU Loan.
4. Homeowner will execute all loan documents and the Affordability Covenant.
5. Homeowners will also have access to no-cost “office hours” with a Technical Assistance advisor to answer any questions about their ADU project.
6. City will release funds to the Managed Construction Escrow Account.
7. Homeowner will have two years from release of funds to complete construction and initiate lease-up.
Part VVII:
OOther Provisions
Mobility-Accessibility
Standards for Preference
Mobility-Accessibility Standards for Preference:
x Exterior and interior accessible path for mobility-aided persons from the property entrance through to every interior room. There may be stairs or other non-accessible barriers as long as an accessible path exists into those rooms and areas. x Doorways are at least 32 inches wide, and all hallways are at least 36 inches wide.
x At least one bath, on the entry level, with a clear space area of at least 60 inches in diameter and must have reinforced walls for grab bars to use in entering and exiting the
tub/shower and around the toilet. Grab bars do not need to be installed.
x A roll-in, no-threshold, or low-threshold bathing facility in an entry-level bathroom.