Still, the money shelled out by the banks pales in comparison to the estimated $ 2.5 billion that Dan Gilbert, Quicken’s founder, has spent buying and renovating over 95 largely vacant properties, including old department stores, in Detroit’s downtown. Now most of those buildings are filled with new businesses. A company backed by Mr. Gilbert brought high-speed internet to downtown and Quicken paid $ 5 million for the naming rights for a recently opened streetcar system called the QLine that makes 12 stops along its 3.3-mile path.
The mayoral election on Nov. 7 is to some degree a referendum on Mr. Duggan’s efforts at reviving both downtown and the city’s housing market. Mr. Duggan is seeking a second term and is opposed by Senator Coleman Young II. Mr. Duggan said one of his top priorities as mayor was getting home prices up in Detroit.
“Home-sale prices have climbed far faster than anyone could have predicted,” Mr. Duggan said.
Perhaps the most vexing issue is the reluctance of banks to give loans to people to buy cheap homes. It’s simple business: The costs of underwriting a $ 50,000 mortgage — doing all the paperwork, the credit checks and the inspections — are the same as for much larger mortgages that can generate more bank revenue. Plus, when homes are in such disrepair, often they are appraised for much less than the amount the borrower needs to fix it up.
That means the collateral on the loan — the house itself — is worth less than the amount the bank is owed. In today’s risk-averse banking culture, that’s a big no-no.
The winners in this environment are speculators with lots of cash. Many local residents, by contrast, are turning to risky seller-financed transactions such as contracts for deed. Evictions are common after just a few missed payments. Over the past five years, at least 5,400 homes in Detroit were sold through a contract for deed and 34,500 in all-cash deals, according to RealtyTrac.
One alternative is the Detroit Home Mortgage project. Launched in early 2016, the program works with a handful of banks to get an appraisal for a house that’s based on the “true value” of the home after it’s been renovated, not in its current dilapidated state. The process effectively involves two loans — one to cover the purchase of a home, and a second mortgage that effectively covers the renovation work. The second loan is backed by a bank and various foundations involved with the program.
“DHM wants to be an ambassador for lending in the city,” said Alex DeCamp, the mortgage community development manager for Chemical Bank, a local lender that has funded 15 loans through the program. The program can take months to complete. Applicants go through a careful screening and most also complete three mortgage workshops to be eligible for a loan.
So far, 54 home buyers have bought homes through the program, among them Ms. McKeon and her husband. So did Ashley and Damon Dickerson, who are about to move into a renovated two-family home.
The Dickersons, both of whom are architectural designers, closed in March. But their search began months earlier when they submitted a $ 45,000 bid during one of the land bank’s daily online property auctions.
Winning the bidding for the 107-year-old home was just the start. The couple found it would cost at least $ 180,000 to fully renovate the six-bedroom, three-story brick structure with a large porch. They were attracted to the home’s hardwood floors, bay windows and potential to reshape it by knocking down some walls.
In all, they got two mortgages from Chemical Bank, according to property records: one for $ 37,692 to cover the purchase from the land bank and another for $ 207,000 to cover the rehab costs. The Dickersons, who both graduated from the University of Michigan, said they never would have been able to pull the deal off without the mortgage program. But the process was a bit of an eye-opener because it took longer then anticipated to close on the home. As with any new program, the couple said, there were “growing pains.”
The Detroit Home Mortgage project is now looking to get banks to provide low-interest loans directly to local contractors, so they can renovate more homes and get them into move-in-ready condition.