After the financial crisis, the Detroit housing market started a long uphill climb to get back to a healthy, sustainable market, an achievement the city is still currently trying to reach. However, according to an article from CNBC by Diana Olick, lenders in the city are working to originate mortgages that work around some of the toughest roadblocks in Detroit and provide a path to homeownership.
Olick explained that the biggest barrier blocking homebuyers in Detroit is what city officials call the appraisal gap.
The article states:
The city's median home price is just $24,000, according to RealComp, due to the fact that so many homes are foreclosures or have been purchased by investors using cash. Investors renovate the homes, driving up the values, but the original, low sale prices are still used as comparables for neighboring appraisals. Regular, mortgage-dependent buyers who want to rehab homes and live in them, are unable to get large enough mortgages because the homes they want to buy are appraising too low. Detroit Home Mortgage is offering an option.
Here’s how Krysta Pate, program director at Detroit Home Mortgage, a program launched in February and designed to make home ownership more affordable and accessible to local Detroiters, explained they working around this:
Through a combination of private funding and cooperation of five different banks, the program offers 3.5 percent down payment, fixed-rate loans to buyers with at least a 640 FICO score. They split the loan in two, with the first covering the appraised value of the home and the second loan covering the "appraisal gap," which would be the value of the home once renovated and on the open market. The second loan is held by a nonprofit.
Ultimately, Pate stated in the article, "It's going to take a lot of hard work, but that is what Detroit is all about.”