Rock the BMR Purchase Process: Overcome Common Hurdles with Ease
At first glance, the BMR home purchasing process may feel overwhelming. However, we're here to assure you it's not!
By learning all you can, taking a proactive approach, and working with a supportive and highly experienced team of housing counselors and sales agents, you'll hurdle the most common challenges like a rock star.
Proactive Planning & Preparation = BMR Purchasing Success
Whether you're interested in purchasing BMR or standard homes, there is always a mountain of paperwork to complete. So, while you may feel like there are more hurdles to get over, we can assure you that you're on the same track as other homebuyers when it comes to forms, documents, proof of employment and income, and all of the other facts lenders care about.
The more you're prepared to provide what is needed - when it's needed - the smoother the process will be from the day you put your application into the 400 China Basin lottery to the day you close escrow and have your new home title in hand.
Overcome 7 Top Challenges When Purchasing a BMR Unit
There are seven common challenges prospective homeowners face when pursuing BMR sales opportunities in their neighborhood or community.
1. Gaining a clear understanding of the process & its restrictions
First and foremost, excited prospects focus on the below-market rate prices and neglect to read all of the fine print. This is understandable because there is a tremendous amount of print to wade through. But in this competitive real estate market, not completing things ahead of time - or on time - could compromise your chances.
There are some key points that must be understood - and agreed to - before you commit to buying a BMR unit. If you have any uncertainty about what's involved, do not hesitate to share those concerns with your sales team, available housing counselors, and buyer's advocates. Two-way communication is essential to the process.
We are as committed to your success as you are, so we'll always answer questions 100% transparently, eliminating any gray areas.
2. Checking off the pre-lottery Boxes
Don't make the mistake of thinking you can enter the lottery first - and then do your "homework." Even though there are time gaps between when new units are listed and their completion dates, prospective home buyers must comply with the protocols set by the city of San Francisco's MOHCD (Mayor's Office of Housing & Community Development) guidelines BEFORE qualifying to enter the lottery.
This includes:
Completing the Homebuyer Education Workshop. In addition to watching videos, reading available materials, and reviewing eligibility criteria, you'll also need to meet with a housing counselor. The Homebuyer Education and Workshop process takes place in three separate steps, requiring ten hours of your time in total.
Mortgage Pre-Approval from an approved lender for the BMR program. To optimize participant success and ensure your lender is well-versed in BMR funding, the city of San Francisco has a list of approved lenders for their BMR program.
Leveraging your lottery preference. These markets are competitive, so it may be wise to seek BMR homeownership based on your best lottery chances. For example, San Francisco gives lottery preference to those who are current or former residents; their entries have the best chance of getting the unit they want. Depending on where you live and work, you may want to research BMR options in other cities to increase your odds. Other lottery preferences include being the first person in a household to enter the lottery, working in S.F., having a Certificate of Preference (COP), and so on.
If you're considering purchasing a BMR property, we recommend getting these pre-lottery hurdles out of the way. For one thing, the homebuyer education program answers most of the questions or doubts individuals have about the program and puts you in direct contact with experienced professionals who can answer questions and honestly address concerns.
Then, the mortgage pre-approval process gives you insight into whether you qualify, how much you qualify for, and how to continue cleaning up any credit issues or enhancing your financial portfolio in case your name is drawn in the lottery.
3. Having a credit score that supports loan approval and lower interest rates
The pre-approval letter is an important first-tier piece of information because it provides you with an insider's view of how lenders evaluate applicants' financial strength and stability. The higher your credit score is, the more likely you are to be approved and with the lowest possible interest rates and any associated loan fees.
There are several things you can do to improve your credit score if it's not as high or as strong as you'd like:
Take care of any outstanding items in collections.
Make all payments on time, even if you can only pay the minimum, to avoid late payment hits.
Begin negotiating with creditors to repay any late/canceled credit accounts taking a toll on the report.
Challenge any errors and clear them from the report ASAP.
Take a break from shopping for any unnecessary items to pay down revolving credit card debt.
Keep credit accounts open (even and especially if they're at a zero balance) to have a more positive credit-to-debt ratio.
Identify and reduce your credit-to-debt ratio. Lenders like to see low credit-to-debt ratios, optimally 30% or less.
4. Maintaining lender approval throughout the sales process
That pre-approval letter from your lender is a great start, but it's no guarantee. In fact, some lenders get more strict with their financing protocols as you approach your close of escrow (COE). Remember, they're taking a gamble on you - giving you their money at an agreed-upon interest rate in the hopes that you'll pay them back.
There's never been a better time to create a conservative budget and live within its boundaries. Even if you feel you can afford new expenditures, we recommend waiting until after you've completed the home purchase to:
Apply for or use new credit cards.
Make any big purchases.
Add any type of debt (car payment, 0% financed furniture or technology, etc.) to your record.
Max out any of your credit cards.
Do not quit your job or change employment if you can help it. If you experience an unexpected employment change, contact your housing sales team immediately.
Mortgage loan underwriters become increasingly meticulous in checking application and documentation details the closer it gets to the completion of your building or unit. Being financially conservative and responsible helps prevent any unpleasant surprises before you're through to the other side.
5. Getting the down payment together
You'll need to have a down payment that is at least 3% of the sales price. So, if your unit costs $350,000, you'll need to have enough liquidity (assets that can convert into cash within 24 to 72 hours) to cover a $10,500 down payment. Lenders (and sellers) look at your ability to make the down payment from the get-go.
If you're planning to use savings, make sure you have at least that much money visible in your bank account statements. If you're planning to use financial gifts from another person (like a parent, grandparent, other sources, etc.), speak to your real estate agent or the lender about how and when they want to see that money reflected in your account so there is no delay.
The good news is that the MOCHD and other resources provide access to exciting down payment assistance programs. If you don't have the qualifying 3%, we'll do all we can to make sure you'll have enough when it's time for your closing.
6. Understanding all of the household income & occupancy regulations
Perhaps one of the biggest differences between a traditional home purchase and purchasing a BMR condominium is the regulations and expectations around household income and occupancy (household size).
This program is designed specifically to assist people who would never be able to afford to purchase a home in the Bay Area of California. In order to honor the integrity of the program and to inspire developers to continue participating in BMR home buyer programs, there are certain contingencies around:
Who is included in the mortgage and financing requirements?
Who will be on the title (Don't forget that anyone included on the loan or on the title must complete the homebuyer education workshop).
How household income is calculated (using the income from every adult in the household - including adult children 25 years old or older).
Unit size restriction based on occupancy (there must be one person per bedroom, so a single person cannot purchase a BMR unit).
All buyers or residents listed on the loan/title using the unit as their primary residence. It cannot be a vacation home, second home, or rental.
Total household income (for all adult occupants) must not exceed the posted Area Median Income (AMI) for the unit. AMI will factor again when you choose to sell the unit (see next.)
We recommend printing the sf.gov BMR Ownership Program page, paying special attention to the sections titled Buyer Eligibility and Financing Requirements. Read them out loud with everyone involved in your process to ensure you're on the same page. Write down any questions that arise from this review and bring them to someone at MOCHD.
7. Align with the resale rules
Often, people taking advantage of BMR home buyer programs forget how much the opportunity helped them once they're ready to sell. During the time you own the unit, you'll reap all of the typical benefits of being a homeowner, from building equity savings as you pay down the mortgage and stable monthly payments (often much less than rental market payments) to mortgage interest tax deductions and more. However, you won't have final control over the resale price. These units don't gain equity the way traditional real estate does.
Regardless of its market value when you - or an heir - are ready to resell, BMR properties are subject to the same affordable housing initiatives and BMR guidelines as they were when you applied to the program. We recommend purchasing your unit with a "pay it forward" state of mind. When it's time to list the unit, future applicants will be part of a lottery pool just like you were, governed by the future markets AMI, and the decision around sales price is ultimately governed by the MOHCD.
Let the Experts Answer Your Questions
Do you feel daunted by some of the common challenges associated with the BMR purchase process? Don't waste another second. Get in touch with the team at 400 China Basin. We know everything there is to know about the sale of a BMR property, and we want to put that information to use for our clients.
Have a question? We'll answer it. Wondering how your timing aligns with the lottery and build-out here in our Mission Bay neighborhood? We'll keep you posted. Schedule your digital BMR Buyer Information Workshop to get started!
The developers at 400 China Basin send regular updates about related schedule changes, offers, purchasing/finance tools, and other services available to meet your needs. Ultimately, we want you to feel like a homebuying rockstar, and we'll guide you through the process as stress-free as possible.
