In an effort to shake up its struggling housing market, the City of Detroit has come up with a new lending program. Previously, banks would not lend money to people who were looking to fix up a distressed house in a less than desirable neighborhood. The banks were simply not going to dole out money to people who could not justify the investment. The banks needed to know that their loans would be safe and secure. So the houses sat empty, and potential homeowners were left without the means to purchase the properties.
Now Detroit has come up with an incentive plan that it feels will motivate people to purchase ‘rough’ houses and fix them up. The lending program is called Detroit Home Mortgage. Over the next three years, the City will allocate 1000 renovation loans with a fixed lending rate at 5% and no bank fees. The loan will cover the cost of the house, and also provide the new homeowner with $75K towards home stabilization. For many, this is an opportunity that is hard to pass up. And for any struggling city, converting 1000 rough homes into stable habitats is a major step in the right direction – especially if the houses are bundled in close proximity to one another.
According to a recent article in CityLab.com, the loans are available to those with steady jobs and decent credit. In order to mitigate risk on the buyer’s end, Michigan-based Kresge Foundation came through with $6 million to ensure that the new homeowners were protected in case of dire circumstances beyond their control.
The loan program is not meant as a longterm solution. Rather it’s viewed as a quick fix to get the housing market moving. The hope is that the 1000 new homeowners will attract others to make additional purchases, while raising property values, and prompting neighbors to invest in their own homes.
This type of incentive could be part of a bundled strategy to drive up homeownership on Buffalo’s East Side.
Hat tip to Lorne Opler who passed along the CityLab.com article.