If you are a police officer, firefighter, teacher, or EMT you may be eligible for HUD’s Good Neighbor Next Door Program. This program aims to revitalize certain areas of the community by encouraging people of the local community to buy homes in these areas in exchange for a 50% discount on the home.
If you are in any of the above professions, it pays to learn more about this program to see how you may benefit.
What is the Good Neighbor Next Door (GNND) Program?
HUD designates certain areas of the community as revitalization areas. These areas and only these areas are eligible for the GNND program. The areas themselves are chosen based on the average household income, the rate of homeownership in the area, and the number of foreclosures. All homes that are sold under the program are owned by HUD.
If you work in one of the above professions, you must certify that you will live in the home as your primary residence and for the next 3 years. You cannot move within those 3 years or you may lose some of the benefit, which we discuss below.
If you meet these guidelines, you are eligible to buy the home for 50% of the sales price. Here’s the catch, though. You will take out a first mortgage for 50% of the sales price minus any down payment you make, if any. You will also have a second mortgage written in your name. You do not have to make payments on this mortgage, which is the other 50% of the sales price. If you satisfy the requirement to live in the home as your primary residence for three consecutive years, HUD forgives the second loan and you are free to do what you want with the home. This includes turning around and selling it for a profit, since you saved 50% on the home.
The Type of Financing
Technically, the Good Neighbor Next Door Program is an FHA program, but you do not have to use FHA financing to buy the property. The incentive to use FHA financing, though, is that you only need to make a $100 down payment. You can finance the rest of the price of the home.
You are free to secure any type of financing though. You are free to secure conventional financing, other government-backed financing programs, or subprime financing. As long as you can secure an approval and have the money necessary for the down payment, you can use any financing that you choose.
What Happens if You Move Early
As we discussed above, you must live in the property for 3 years. HUD understands that things change and you may have to move for reasons outside of your control. If that happens, there is a penalty. As we discussed, HUD would normally forgive your second mortgage for the full amount if you satisfy the occupancy requirements. If you don’t, you will owe a prorated amount of the second mortgage. You’ll owe 1/36th of the amount of the second mortgage for each month that you leave prior to the 3-year mark. In other words, you must pay 1/36th of each month left in the contract.
You do not have to be a first-time homebuyer to use this program. Anyone that is in an eligible professional within the community is eligible as long as they have not owned a home within the last 12 months. You cannot own a home when you apply for the program. This home, as we stated, must be your primary residence.
You must use a licensed real-estate agent to make your bid for you. HUD does not take bids from individual buyers. You also must make a 1% earnest money deposit. This amount is based on the full sales price, not the 50% discounted price. If you make a bid on the home and then do not follow through with the purchase, you do stand to lose your earnest money deposit.
The Good Neighbor Next Door program is a great program for those that work within the community that want to save some money over the next few years. With the lower sales price on a HUD home, you can afford to fix up and help the community surrounding the home appreciate and hopefully get back to its normal hustle and bustle before its destruction began.