Urban Renewal Areas

Did you ever wonder how Mississippi became the next cool neighborhood in Portland? Or why there are new, trendy businesses being opened in neighborhoods that don’t seem to be able to support them? The short and very unsophisticated answer is: Urban Renewal.

The articles I have been composing for the last several weeks have been meant to provide information about different aspects or mortgages in general. The next couple of articles will focus on how certain loan programs will help homes in the Portland area specifically.

The Portland Development Commission has been instrumental in allocating funds to specific neighborhoods with the specific goal of revitalizing that area.

To give you an idea here is their Vision Statement off of their website: http://www.pdc.us.

The Portland Development Commission’s Vision is to be a catalyst for positive change in the creation of a world-class 21st Century city; a city in which economic prosperity, quality housing and employment opportunities are available to all.

Their Mission Statement is:

Our Mission is to bring together resources to achieve Portland’s vision of a diverse, sustainable community with healthy neighborhoods, a vibrant central city, a strong regional economy, and quality jobs and housing for all.

There are different programs available to areas that are within urban renewal zones. But more on that next week. This week I want to talk about some of the challenges and opportunities that exist in some of these areas.

First the challenges. Most home buyers will search for a house that they can live in upon purchase and in exists in a neighborhood that is appealing to them currently. Others look at home buying as a place to call home but also as an investment into their families future. For these folks, many of them will look for neighborhoods in the city where there is potential for their home to gain in value quicker than in more established neighborhoods. They research where new businesses are being established, where homes are being remodeled, and where the Portland Development Commission has designated an urban renewal area.

Typically, if houses in a particular neighborhood are being remodeled and new businesses are opening, then it is likely that the rate that a home will potentially appreciate will be much greater than other neighborhoods.

This may give you greater financial leverage in the future. For example, if you were to purchase a $250,000 property in a trendy, yet established neighborhood like Hawthorne, based on the 2007 average appreciation for Portland at 6.2%, you can expect to see your house be worth $265,000 at the end of your first year of homeownership. A $15,000 gain in value.

If you were to purchase that same house in a neighborhood like the Mississippi or Alberta Arts neighborhoods were years ago just as they were becoming the next big thing, your house might have appreciated at a rate of 12% per year or more. At the end of the first year your $250,000 house would be worth $280,000 in a years time. A gain of $30,000.

As you can surmise, someone who knew how to read the signs of a neighborhoods future, could potentially sell their property in 3 years time for almost $100K in profit. That could equate to putting a $100K down payment on their next property, or getting rid of mortgage insurance if they bought the house with less than 80% down payment.

Beyond the challenge of attempting to peer into the crystal ball to see which neighborhoods will be the next big thing, the more immediate challenge with purchasing a property in these areas before they are established is that many of the properties are in need of repair. This already adds more costs to an already expensive transaction. Now, in addition to the closing costs, prepaid expenses, and down payment, you must pay for repairs. Many can’t afford this additional expense. Nor do they want to have to live in a house that is in need of repair or wait until to move into the house until the repairs are complete.

In addition, mortgage lenders not only qualify the borrower for a home loan, but the property has to meet specific standards as well. Most lenders will require that certain repairs be complete prior to funding the loan. This makes sense since it is an investment for the lender. They want to make sure that if the borrower were to walk away from the property for some reason, that the house would be in condition to sell.

There is a loan product, however, that is designed specifically for properties that won’t normally qualify for a new loan. The idea is to encourage people to purchase homes in order to help neighborhoods revitalize. The ideas is that a buyer will purchase a home and finance it through this program. In addition to financing the property, the costs of the repair are also financed into the same loan. The FHA 203(k) is a Rehabilitation Mortgage product that is insured by The Federal Housing Administration.

Next weeks article will be about the FHA 203(k) product and it’s guidelines.

For more information on any mortgage subject, feel free to contact me here on PortlandNeighborhood.net or at any of the contact methods below.

Wade Willis
Loan Officer
wadewillis@soundmtg.com
www.wadewillis.com
503.819.8174 Cell
971.327.9750 Office
503.715.5700 Fax