While this might sound like another exotic mortgage gone wrong, it’s actually a new program geared toward making the city of Detroit better, not worse.
And somewhat ironically, it is a ridiculously high LTV mortgage with few underwriting requirements that is being utilized to get a downtrodden city back on its feet.
I’m referring to the “Detroit Neighborhood Initiative,” launched today by the Neighborhood Assistance Corporation of America (NACA) and Bank of America.
It’s basically a rehabilitation mortgage, similar to the FHA 203k loan, with a mortgage that exceeds the property value because renovation funding is included.
In order to qualify for the 150% LTV funding, home buyers need to purchase a property through the Detroit Land Bank’s site, Buildingdetroit.org. Otherwise, the LTV is capped at 110%, which is still pretty solid.
NACA’s Best in America Mortgage
The new initiative works with NACA’s existing “Best in America Mortgage,” which doesn’t require a down payment, closing costs, points, fees, or credit score consideration.
There’s also no income limit, despite the program being geared toward those with low-to-moderate income.
And the interest rates are below market; 3.5% on a 30-year fixed and 2.875% on a 15-year fixed.
It probably sounds too good to be true, but they claim to have $13 billion to lend to those interested.
In fact, one lucky couple got a rate of 0.062% on their 30-year fixed mortgage, which since I last checked, is the lowest interest rate known to both woman and man.
I believe the ultra low rates are achieved via buy downs, with one percent of the loan amount reducing the interest rate by .25%.
The program is available in 40 markets throughout the United States, but caps the LTV at 110%.
Detroit Stabilization Program
Assuming borrowers complete the NACA pre-purchase home buyer program, they can qualify for one of these loans at up to 150% LTV if they purchase and renovate a home in Detroit.
They cite an example where a borrower buys a home for $5,000 from Detroit Land Bank and rolls in $55,000 for renovation costs.
Because the home would typically only appraise for $40,000, a LTV of 150% is necessary to get the job done.
This hypothetical borrower would still enjoy a monthly mortgage payment below $400, including taxes and insurance, on a 30-year mortgage, and under $600 on a 15-year fixed.
NACA argues that this would be “significantly less” than a homeowner would pay to rent.
Bank of America will be providing the mortgages in an effort to rebuild Detroit’s classic homes and neighborhoods.
For those interested, there will be a workshop on Saturday April 25th from 9:30 AM until 1 PM at Pure Word Missionary Baptist Church in Detroit, Michigan.
While it sounds like a great idea, it only works if Detroit home prices actually continue to gain in value.
There’s a lot of hope in the hard-hit city, but no guarantee of a revival. If home prices stagnate or fall, homeowners will be holding a mortgage that again may exceed the true value of the property.
Late last year, NACA and BofA also launched the critically acclaimed Wealth Building Home Loan (WBHL), which is a low-priced 15-year fixed that allows for faster home equity building at an affordable price.
(photo: Stan Wiechers)
It’s so interesting to read about how Detroit and relevant groups and organizations are providing innovative mortgage options for people in difficult situations. Allowance for remodeling, low or no down payment, etc. are amazing features. Can only wish all those who participate the best.