Here's exactly how the Detroit Home Mortgage works
Everything you need to know about the city's newly announced mortgage program
There's money in the air in Detroit.
That's the sentiment of Latrice McClendon, who lives in the North Rosedale Park neighborhood in Detroit.
Most outside Detroit may be familiar with Rosedale Park as being one of the city's premier neighborhoods, but it hasn't been immune from the same that have plagued other neighborhoods. Still, Rosedale Park, both its north and south sides, remains desirable to Detroiters and non-Detroiters alike.
Financing a home purchase in North Rosedale Park – or really, any neighborhood in Detroit – has been a challenge as the real estate market has yet to recover. This is due to a variety of factors affecting everyone citywide: Schools closing down, Detroiters fleeing to inner-ring suburbs, crime rates at alarming highs and cancerous blight.
Roughly 500 mortgages were used to purchase homes in Detroit; the vast majority of homes are purchased with cash. The city of Detroit hopes to kickstart more mortgages with the Detroit Home Mortgage program, announced today at a Rosedale Park home not unlike McClendon's.
"The reason for (the mortgage market) isn't because of low credit scores or income," Detroit Mayor Mike Duggan says. Instead, he points to what's called the "appraisal gap" – where a home is listed for a higher price than what it actually appraises for.
With Detroit Home Mortgage, the program is looking to offer 1,000 mortgages – not a lot compared to other larger cities, but a small start in an effort to aid a weakened housing market. There are conditions and requirements, though. Here's the BLAC breakdown.
What credit score does a potential Detroiter homeowner need if they're looking to obtain a Detroit Home Mortgage?
The big question, and the big answer: 640. That's higher than a conventional loan, which requires a 620 FICO score, and higher than a FHA loan, which requires a 580 FICO score if you're looking to put down a minimum down payment of 3.5%. (In some cases, lenders will offer FHA loans to borrowers with a FICO score between 500 and 580, though a down payment of 10% is required.)
How much of a down payment do I need?
The Detroit Home Mortgage program works with five different banks with offices in Metro Detroit: Huntington, Flagstar, Talmer, FirstMerit and Liberty. Depending on which bank offers the loan, the down payment will vary.
Where does the house have to be located?
Anywhere in the city of Detroit. There are no neighborhood restrictions. City officials emphasize that almost any house in the city, including ones owned by the Detroit Land Bank, are eligible, but not restricted to homes owned by the Land Bank. That means you and your real-estate agent could potentially get a Detroit Home Mortgage on a home sold by Century 21, ReMax, whoever the agency may be. The Detroit Home Mortgage is not available for suburban home purchases, however.
Are there any income requirements?
There must be "adequate" income, according to city officials. Duggan emphasized that the mortgage income was "not a low-income program," meaning that it is not a program designed specifically for low-income borrowers, but low-income borrowers should not be deterred from home ownership, so long as they find a house that falls within their budget. Customers across the income spectrum are eligible.
So I've got the income and the credit score and a house in mind. What's next?
The Detroit Home Mortgage program gives two loans to borrowers to finance a home purchase: One to cover the appraised cost of the home, and one to cover the "appraisal gap." In Detroit – and other cities with depressed housing markets – a home may be listed at $90,000, for example, but only appraise for $80,000. Through Detroit Home Mortgage, a borrower would obtain a loan for $80,000 and a secondary loan for $10,000 to cover the financing. (Regardless of how much the home appraises for, the secondary loan has a limit of $75,000.)
What are the rates on these mortgages?
The rates vary by bank, specific to each of the five banks participating in the program.
Wait, so if a home appraises for $80,000, why am I getting a loan for $90,000? Wouldn't I be underwater?
Good question. Duggan said today he's hoping that the housing market rebounds to the point where home values rise, thus making a home that originally appraises for $80,000 rise to that $90,000 point. It's understandably a risk, Duggan acknowledges. Regardless, buyers would still be on the hook for both loans even if home values don't rise.
What if my mortgage suddenly becomes unaffordable?
The Detroit Home Mortgage does offer special conditions for those who experience a hardship. If they are forced to sell the home, there is financial assistance available.
Wait – money to finance the home, and money in case you have to sell it. Where, exactly, is all this money coming from?
Another good question. There is currently $40 million in a fund for the Detroit Mortgage Program, funded primarily by the five banks. The five banks have contributed $28 million to the fund. The rest is made up from funds from the Ford Foundation, the Kresge Foundation and the Michigan State Housing Development Authority. The idea to coalesce all these groups was presented to the Clinton Foundation, who worked with the city of Detroit to bring everyone to the table.
Can I use a Detroit Home Mortgage loan to finance a Detroit Land Bank home?
Can I use a Detroit Home Mortgage loan to refinance a home I already own?
Yes, though it must be in the city of Detroit and it must be used for renovation.
When does the program go into effect?
Now. As you're reading this.
Did we answer everything? More information is available at detroithomemortgage.org.