The Housing and Urban Development offers FHA loans at low down payments and less stringent credit requirements. Aside from FHA loans, the HUD offers an array of special homebuying programs dedicated to certain segments of society. By strengthening and encouraging homeownership, these borrowers settle in these areas and contribute to the growth and revitalization of the community they live in.
The HUD’s three special homebuying programs are:
- Good Neighbor Next Door
- Indian Home Loan Guarantee Program
- Homeownership for Public Housing Residents
Good Neighbor Next Door
About: The GNND program offers as much as 50% discount off certain homes located in revitalization areas designated by the HUD. By settling in the community, the eligible borrowers become that good neighbor next door.
For Whom: Teachers, (pre-kindergarten through 12th grade), firefighters, emergency medical technicians, and members of the law enforcement may be eligible to join the program.
How It Works: Check home listings in your state. Submit a bid through a real estate broker registered with the HUD. A listing is up for purchase within seven days. You can buy it for half of its appraised value. Say a $100,000 home can be bought for $50,000.
- In exchange for availing the discounted price, you have to occupy the home as your main/primary residence for the next 36 months or three years.
- You may finance the purchase price of $50,000 with an FHA loan whereby the down payment is $100 and the closing costs financeable. Other financing options are VA, conventional loan or FHA 203(k) if repairs more than $5,000 are needed.
- You need to pay an earnest money deposit that is 1% of the listed price, but should be between $500 and $2,000.
- You are required to sign a second mortgage note on the discounted amount of $50,000.
This silent mortgage will not incur an interest or payment for as long as you live in the house during the occupancy period. You will be released from any obligation arising from the second mortgage after the three-year stay.
Indian Home Loan Guarantee Program
About: Also known as Section 184 Indian Home Loan Guarantee Program, this provides financing for the purchase, construction, rehabilitation, and refinance of a home in native communities.
For Whom: This program is made specifically for American Indians, Alaska natives or other members of federally recognized tribes, tribally designated housing entities, and Indian housing authorities. Native Hawaiians can apply for Section 184A home loans.
How It Works: A borrower will work with an approved lender for a Section 184 loan with its low down payment and flexible underwriting guidelines. The lender will evaluate the loan and its documentation and submit it for approval to the Office of Native American Programs that will guarantee the loan.
The loan is applicable to one-to-four unit family homes with a repayment period of 30 years or less. Not eligible for commercial buildings or adjustable-rate mortgages.
A borrower can borrow up to the maximum loan amount per county as of June 1, 2016. The home subject to the loan must be located in a Section 184 eligible area, which may include areas outside of tribal trust lands.
Homeownership for Public Housing Residents
About: One of the homebuying programs for residents or non-residents of public housing so they can transition to homeownership by owning units in public housing developments.
For Whom: Low-income families may be eligible to purchase public housing dwelling units from local PHAs or public housing authorities.
How It Works: The PHA will submit a homeownership plan contemplating the sale, repair or rehabilitation of the units to the HUD for approval.
From the end of the purchaser, he/she must have an income not exceeding 80% of the area median family income. The unit must also be occupied as a primary residence of the family.
The purchase requires a down payment of not less than 1% of the purchase price. Other purchaser eligibility requirements are set by the PHA under their respective housing programs and vouchers.