6 ways to buy a house in Detroit

From traditional mortgages to land contracts

From the outside, Detroit’s housing market seems like a land full of cheap properties. At the same time, Midtown and downtown condos sell for over $500,000 and the market overall has gotten much more competitive. For those looking for reasonable move-in ready homes, it can be a frustrating, lengthy process to find and purchase the right one.

According to Realcomp II Ltd., the median home sale price on the MLS for January 2020 was just $40,000. Though that was an 11 percent increase from last year and many of them were likely fixer-uppers.

While many buyers first go to traditional mortgages when purchasing a house, that hasn’t been the case in Detroit for a while. The number of mortgages issued has been increasing, but overall lending is still heavily dependent on credit and many Detroiters can’t afford a downpayment and other associated closing costs.

But there are other avenues to buying a home. Some are a little riskier or come with higher monthly payments, but still might make more sense than renting. Here are six ways to buy a house in Detroit.

Traditional mortgage

Since 2008, obtaining a traditional mortgage in Detroit has been a challenge. A report by Bridge Magazine found that in 2017, traditional mortgages accounted for about 21 percent of all home sales in Detroit—994 in total. Even then, mortgages were much more likely to be used in stable neighborhoods like East English Village, Grandmont-Rosedale, Boston-Edison, the Villages, and University District.

But that has been changing. More mortgages were issued in Detroit in April 2019 than any month since the 2008 housing crisis. And the total number of mortgages has increased every year since 2012.

Getting a mortgage is relatively simple for someone with a good enough credit score and proof of income. You should also determine how much you’re willing to put down—20 percent of the home’s value is generally the number to work towards.

But if you can’t afford that high an amount, which many in Detroit can’t, a government-backed FHA loan can be a good route—you may only need to put as much as 3.5 percent down. And if you’re a veteran, you might qualify for zero down through a Veterans Affairs mortgage.

No matter how you get a mortgage, you’ll want to get pre-approved. Because you’ll be able to closer quicker, this will make you a more attractive buyer.

Detroit Home Mortgage

The Detroit Home Mortgage (DHM) program is set up through five banks—Huntington, Chemical, Independent, Liberty, and Flagstar—to help people buy and renovate homes in Detroit.

Many Detroit homes require renovations, and the final gap in cost was hard to find funding for. DHM allows buyers to borrow up to $75,000 more than the assessed value of the house to make up for historically low assessment values. An initial appraisal is done, and then the bank splits the loan into two mortgages. “The first mortgage will be for 96.5 percent of the appraised value. The second mortgage will be for the amount above the appraised value up to $75,000.”

This program can be used for single-family homes up to fourplexes; if the buyer is investing in a multifamily home, they must live in the property for at least a year.

Detroit Land Bank

The Detroit Land Bank owns around 100,000 parcels in Detroit, including both land and homes. While the group offers some homes to purchase as-is or renovated through its Rehabbed & Ready program, the main avenue of purchase is the daily auction. Run down houses all over the city are put up for auction every day starting at $1,000. The Land Bank’s website provides a detailed list and cost estimate for the properties. City employees and teachers can get properties at half the final price.

Once purchased, the new owner must undergo renovations in a timely (six-month) manner bring the property up to code.

Auction

A variety of sites offer Detroit properties through auction, but the most well-known and controversial is the annual Wayne County Tax Foreclosure Auction. Bidders used to be able to get significant buildings on the cheap. In the last few years, more work has been done to make sure that occupied homes are not in the auction.

For years, out-of-town speculators have bought property from the auction in bulk; some of these properties are occupied by renters and owned by negligent landlords. In the last year, a program was put in place to help renters purchase their home before the auction, but the system is admittedly flawed and convoluted.

Nonetheless, it’s still possible to find an unoccupied home ready for a new owner. But it’ll definitely take a lot of work to make it livable.

Cash

From downtown condos to the cheapest of houses, cash sales are prominent in the Motor City. For investors and those moving from other urban areas, Detroit’s real estate prices are comparatively cheap. The Wall Street Journal reported that, “Low housing prices, affluent buyers, challenges with appraisals, and strong interest from investors hoping to make gains on a revived Detroit are making cash deals more common.”

This can be frustrating for residents looking to buy in their neighborhoods, as investors could swoop in with a cash offer for a desirable property.

Land contract

Land contracts still happen in Detroit, but we only advise taking this route with caution.

In a land contract, the buyer agrees to purchase the property from the owner and pay in installments; when all is paid, the buyer gets the deed. This has been popular in Detroit due to cheap property and difficulty in getting a mortgage. But it’s also unregulated, has much higher monthly costs than a mortgage, and puts most of the risk onto the buyer. Often if a single payment is late, the contract is nullified and ownership of the home returns to the seller.

In the past, it’s been a common tactic of large-scale speculators to take advantage of low-income Detroiters.