DETROIT – A new program is expected to allow qualified buyers to receive separate mortgages to purchase and do repairs on homes in Detroit.
Mayor Mike Duggan announced the Detroit Home Mortgage initiative Thursday in northwest Detroit to help solve an appraisal gap problem.
Banks will now be able to lend qualified homebuyers the full amount needed to purchase a renovated home, or to buy and rehabilitate homes anywhere in the city of Detroit.
Previously, federal lending guidelines did not clearly allow banks to loan borrowers enough money to cover necessary repairs because the loan amount was limited to the low, appraised value of a house. Many potential homebuyers have good credit scores and stable incomes, but could not get a large enough mortgage because the appraiser could not find a similar home nearby with a comparable sales price. Houses across Detroit remain inexpensive to purchase relative to homes just outside the city limits, but the lack of financing forced many families either to pay cash or to rent instead of building equity and investing in their futures.
Under the program, the first mortgage would cover the appraised value of the house. The second mortgage of up to $75,000 would fill the gap between the appraised value and the sale price of the home and renovation costs.
It is designed to help increase homeownership in Detroit neighborhoods. The effort is a partnership between local banks and nonprofit organizations: Huntington Bank, Flagstar Bank, Talmer Bank and Trust, FirstMerit Bank, Liberty Bank, the Ford Foundation, The Kresge Foundation, and the Michigan State Housing Development Authority.
Detroit Home Mortgage borrowers must complete classes in homebuyer education and the financial risks involved in borrowing more than the appraised value of a home.
Southwest Economic Solutions is one of several counseling agencies that will offer Detroit Home Mortgage education classes, including U-SNAP-BAC, National Faith Homebuyers, Central Detroit Christian and other HUD- or MSHDA-approved agencies.
All participating banks will offer Detroit Home Mortgages at the same low interest rates with no bank fees. Like all loans, Detroit Home Mortgages must be repaid. However, The Kresge Foundation will provide a $6 million guarantee on the second mortgage pool to protect borrowers in extreme cases of hardship that require a homeowner to sell his or her home.
Those interested in applying for a Detroit Home Mortgage can learn more at www.detroithomemortgage.org, or by visiting one of the initiative’s participating banks.