Julian Spector, an editorial fellow at CityLab, details a bold lending program aimed at increasing homeownership in Detroit.
The city program comes at a time when traditional lending policies have made it difficult for potential borrowers to buy an old house and fix it up.
Detroit Home Mortgage offers buyers a mortgage for the cost of a house, plus a second mortgage to cover up to $75,000 of repairs. The goal is to deliver 1,000 of those renovation loans over the next three years, at a fixed rate of 5% interest with no bank fees. Mayor Mike Duggan hopes this will spur homeownership in the city and kickstart a housing market that’s been languishing since the city’s financial troubles began. Spector writes:
On its surface, the plan flies in the face of a core tenet of financial responsibility: don’t borrow more for your home than it’s worth. But the housing market in Detroit is such an anomaly that the traditional rules don’t always apply.