Understanding BMR Homebuyer Programs
Imagine never writing another inflated rent check but paying off a mortgage instead. Or the ability to create a level of legacy wealth and inheritance that wouldn't be possible without homeownership. If these dreams resonate with you but feel impossible because you can't afford a Bay Area home, you're probably a candidate for a BMR Homebuyer program.
Below Market Rate (BMR) programs offer an exciting way for Bay Area residents to own their very own homes, making mortgage payments they can afford. As housing prices increase at rates far outpacing the average Bay Area resident’s income, turning your rent payment into a monthly mortgage payment - despite any restrictions - still provides a far better return on your investment (ROI).
BMR Information Overview
BMR programs were designed to give very-low, low- and moderately-low-income earners the ability to become homeowners.
While there are particular qualifying guidelines and more restricted parameters around ownership than exist with a traditional home, informed buyers appreciate the benefits of making a mortgage payment that goes back into their own pockets when they choose to sell. This is very different than the rental experience, where you can spend tens or hundreds of thousands of dollars over a decade or more - and never see a single dollar when you move out.
While this guide offers prospective buyers a basic understanding of BMR options, we recommend speaking with experienced sales representatives in developments offering BMR units or with a real estate agent familiar with MOHCD protocols.
What Are BMR Homes Like?
The majority of below-market-rate homes in San Francisco are incorporated into condominium and/or mixed-use type developments that include comparable units worth $1 million or more. These units are equally as stylish and come with the same amenities and environments as the nonBMR-owned units, providing high-quality, safe housing in desirable school districts at a fraction of the price for qualifying households.
Here in San Francisco, Provisions for BMR housing developments 400 China Basin are established through an Inclusionary Zoning Ordinance governed by the Mayor’s Office of Housing and Community Development (MOHCD). These ordinances expand affordable homeownership opportunities in the community. Developers absorb the difference between what they make in the initial, reduced sales costs, but the City governs the purchase and resell requirements.
Qualifications & Program Agreements to Purchase a BMR Home
Ultimately, the overarching goal of BMR programs is to ensure there are affordable homebuyer options available - forever. Once a unit is part of a BMR program, it must remain one. As a result, buyers must meet strict criteria - and there are agreements that govern the sale of your unit down the road.
As a result, purchasing a home that qualifies for the BMR program is a different type of commitment than traditional homeownership, depending on your agreement to provide proof of specific financial and legal information throughout the purchasing terms.
Some of the most common qualifications and program agreements set by the City include the programs being limited to:
First-time homebuyers
You must be a first-time homebuyer. No household member can have had any ownership interest in a residential property for the last three years.
Income-based buyer qualifications
Not surprisingly, proof of household income is a foundational requirement to purchase your unit. The City government works hard to ensure that individuals buying these units don’t have other options in our economy or elevated real estate market, preventing those who can afford housing from taking advantage of the system.
Maximum household income limits change yearly, depending on the economy. However, the total household income cannot exceed the posted Area Median Income (AMI) per year. Total household income is calculated for every resident in the home who is 18 years old or over. These totals include multiple factors, including the level of savings, investments, and other liquid assets.
Occupancy agreements
Keeping in mind that the goal of any BMR program is to assist homebuyers who are otherwise priced out, there are also eligibility parameters around occupancy to keep things as equitable as possible.
There is a minimum of one person per bedroom. If you are single, you would only be eligible for a one-bedroom residence. That said, the total household size must adhere to the San Francisco Building Code’s maximum occupancy numbers, so occupancy cannot exceed those guidelines.
If you have joint or shared custody of children, they must be in your custody (verified via court documents) for at least 30% or more to count as a bedroom occupant.
Resale restrictions
Resale restrictions are where most prospective buyers have questions or concerns. This is because the City sets the units' BMR resale price, rather than the real estate market, maintaining the unit's affordable housing status. As a result, some BMR homeowners have been in a situation where the sales price was lower than their original purchase price.
In an area like San Francisco and a desirable waterfront location like ours, this is unlikely, but it can happen depending on the economy and other varying factors, like city council and other public agency changes. This is one of the reasons prospective owners should learn all they can via an available workshop, the assistance of an educated and informed local real estate agent, and on their own.
Benefits of Participating in BMR Programs
Despite program restrictions and agreements, most families find the pros far outweigh the cons. Plus, qualifying applicants are part of a lottery, which means the sooner you enter the pool, There are several benefits of participating in BMR programs beyond achieving homeownership.
1) Investing in yourself and your future generations
Every time you pay rent, that money goes to the landlord, and you never see it again. While you've benefitted from a roof over your head or any capital improvements made while living there, that money is virtually thrown away. So, if you spend $2500 per month on rent, and you've lived at the same site for 10 years, you've paid a landlord $300,000.
In the BMR program model, that money would still be yours in the form of a paid-down mortgage loan, and it can be recouped down the road if you sell it. If you choose to spend the rest of your life there, the home can be inherited by your beneficiaries following the program’s guidelines.
All of that and more is impossible when you pay rent to a landlord who has the ultimate control when it comes to fluctuating rental prices, rules, interior upgrades, whether or not you can have pets, etc. Owning a home, even through a BMR program, is almost always a positive investment in your future.
2) Down payment assistance & other perks
Certain lenders are interested in supporting affordability and participate in programs specifically dedicated to buyers like you. This means, depending on your credit report, application details, and other qualification guidelines, you may be eligible for:
Grants or loans to support your closing costs.
Guaranteed loan approval (even if your credit report isn't as strong as you'd like it to be).
Free lending and credit counseling.
Access to MBR education, workshops, and incentives.
Taxes and other benefits associated with homeownership.
3) Short- and long-term financial benefits
In addition to having a mortgage payment that builds savings equity, rather than a rent payment that disappears year after year, there are additional benefits of being a BMR homeowner:
No mortgage hikes, with potential reductions. Unlike rents, which increase regularly (and without any added value to you), mortgage payments are fixed for the length of the loan term while you’re simultaneously building savings equity as you pay the mortgage down.
Additionally, when interest rates go back down, qualifying individuals have the ability to refinance their loans, which can notably lower payments. In many cases, BMR homeowners have mortgage payments far less than market rent prices.
Significant annual tax benefits. Homeowners get to write off their mortgage interest rates each year, which makes a notable difference at tax time. Speak to a tax professional about how the home mortgage interest deduction benefits your household with regard to your tax bracket percentage.
Payment-free retirement. Once you’ve paid the mortgage off, your monthly expenses shrink considerably. This frees up funds for extra savings, extra spending, or taking those vacations you’ve always dreamed of.
Ready To Take the Next Steps?
If you know you'll live in the Bay Area for the next ten, twenty, or thirty years - and feel you'll never have what it takes financially to become a homeowner - it's time to learn about the financial benefits of BMR homebuyer programs.
Get in touch with the 400 China Basin team. Sponsored by the City’s Office of Community Investment and Infrastructure, 400 China Basin is part of the City’s Limited Equity Program, offering permanent affordable home ownership to middle-income individuals and families. We are flooded with applications on a daily basis and look forward to pulling your name in our next lottery.
You can also download our Information Workshop, available in English, Spanish, Chinese, and Tagalog, to learn more about the process and to access more resources. Who knows? You could be closing escrow - becoming a bonafide homeowner - as early as September 2024!
