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09:Underwriting Definitions
- Assets
- For the purposes of the Program, "asset" means the value of a household's savings and any equity in stocks, bonds, real property, or other forms of capital investment. "Asset" does not include items reasonably necessary for the personal use of the household, such as personal effects, furniture, appliances, automobiles, and real or personal property used in a business or undertaking which is the primary source of livelihood for the household. Assets also do not normally include the value of life insurance, pensions, IRA accounts or other retirement funds. However, in order to allow TORCA loan program applicants the ability to satisfy minimum down payment requirements, accessible retirement deposits such as IRA or 401K can be considered as funding sources if requested by the applicant (after discounting for applicable penalties).
- Creditworthiness
- The City may, in its sole discretion, decline an application for a loan where staff has reasonably determined that the Boer's income, employment history, or creditworthiness is not sufficient to ensure repayment of all proposed loans being sought for the Assisted Unit.
- Front-End Ratio
- A front-end ratio is defined as the monthly cost of housing (payment of principal, interest, taxes, homeowner association fees, and insurance) as a percent of the household’s gross monthly income. Thirty-three percent (33%) front-end ratio is targeted for fixed-rate mortgages. Any departure from the ratio must receive prior Housing Division approval based on factors such as credit history, reserve levels, or the ratio of total obligations to income. In any event, the ratio may not be less than twenty-eight percent (28%).
- Loan to Value Ratio
- The total amount of all loans secured by the Assisted Unit, including the City's loan, shall not exceed 97% of the appraised value of the Assisted Unit. An appraisal of the Assisted Unit shall be provided by the Borrower and shall be subject to City approval. Wherever feasible, the City shall utilize appraisals prepared by or for private lending institutions providing financing for the Assisted Unit.
- Prepayment of the City Loan
- Borrowers may prepay the City loan at any time. However, upon prepayment, the Borrower must pay to the City the principal and contingent interest, as well as any applicable interest due under the anti-speculation provision of these Guidelines.
- Price Test
- The price of an Assisted Unit must be comparable to or below the price of similar units in the same building. The Borrower must take advantage of seller discounts whenever feasible.
- Refinancing of Senior Financing
- If the Borrower desires to refinance the primary debt or borrow any additional funds after the initial purchase of the Assisted Unit, the City shall review and approve the terms and conditions of the proposed loan and the proposed use of the proceeds. The City reserves the right to prohibit such refinancing if staff reasonably determine that it will adversely affect the City's interests. In no case shall the Borrower be allowed to increase the amount of total debt on the Assisted Unit.
- Reserves
- To safeguard buyer ability to service debt, a minimum reserve level of two months of total housing costs is required (total housing cost based on aggregate amount paid for principal, interest, taxes, homeowner association fees, and insurance).
- Seller Credits
- The Applicant must take advantage of seller discounts or credits when available. Such credits must first be applied to non-recurring closing costs if required by the Lender to conform with their underwriting standards. To ensure that the buyer makes the largest possible down payment in accordance with his income and available assets, the City will determine how any seller credits shall be applied. For example, seller credits can be used toward closing costs, purchase price reduction, interest rate buy down, or down payment assistance.
- Seller Financing
- The City shall review seller financing proposals on an individual basis. The City reserves the right to reject a loan application if staff reasonably determines that the terms of the seller financing would adversely affect the City's interests
- Senior Financing
- The City reserves the right to review and approve or disapprove the terms of all senior financing. Any senior loan must be made on a fixed rate basis; variable payment or adjustable rate loans shall not be allowed.
- Student Status
- As long as the student applicant is self-supporting, can demonstrate income eligibility and is not a dependent of a third party, an applicant may be a student. A student is defined as a person who is carrying a full or part-time course load (as defined by the institution) at an institution with a degree or certificate program
- Transaction Cost Limits
- City loan proceeds used to fund transaction costs may not exceed: 1) $4000 for non-recurring closing costs (excluding prepaid interest) and 2) 1.0% of the first trust deed loan amount for mortgage broker fees.
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