The appraisal gap is a problem in cities like Detroit. The effects of years of economic decline and depopulation continue to wreak havoc on the real estate market, despite hot markets in several neighborhoods in the city. So the gap between what the market bears and what traditional lenders will underwrite in loans is slowing the comeback.
Mayor Mike Duggan, with help from the Obama Administration, local banks, non-profits and philanthropy, formed the Detroit Home Mortgage to make it easier to buy and renovate properties in the city. Here is the strategy:
“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. Some homebuyers use expensive credit cards to pay for renovations, or do the renovations piecemeal over several years.”
I’m excited to see what this does for the home buyers market in Detroit. Everyone involved is to be commended for their work. If you want to view available properties in the city visit these listings from two friends who know the market inside and out.