Jan 2010
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The purpose of the Good Neighbor program is to strengthen communities by encouraging employed law enforcement officers, teachers, firefighters, and emergency medical technicians to live in the community.
In addition, if you qualify for any FHA-insured mortgage program, your downpayment is only $100 and you may finance closing costs. When you sell the home, as long as you’ve lived there at least three years, you get to keep the full profit—including the 50 percent equity you started with.
Sound too good to be true? Maybe, but it is true. This is a federal program applicable to homes in every state across the country. There’s not exactly “a catch,” but there are plenty of parameters you must meet to own your own home at half its market value.
The House
The deal is good for only certain houses, and these houses are in designated Revitalization Areas. That doesn’t, however, necessarily mean you’ll live in the slums; there are hundreds of Revitalization Areas located in the United States. In fact, they may be in very good areas of cities, but for whatever reason has been placed in the program—perhaps because it’s in a block of older homes that need updating.
The house itself is sold “as is” and may need some work, but the government also offers a deal to help you with that. Buyers may also apply for a (203k) FHA Rehabilitation Mortgage to buy the home and have enough money to rehabilitate or repair it. Repairs must cost more than $5,000 and the cost of repairs and the mortgage are combined into a single monthly payment.
Your Occupation
To be eligible for the program, you must be employed in one of these three occupations:
1. A law enforcement officer sworn employed full-time by a law enforcement agency of the federal government, a state, a unit of general local government, or an Indian tribal government.
2. A firefighter or emergency medical technician employed full-time by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or an Indian tribal government serving the area where the home is located.
3. A full-time teacher employed by a state-accredited public school or private school for students in grades pre-kindergarten through 12. In addition, the school where you’re employed must serve students from the same area as the home you’re purchasing.
Repair Financing
The Section 203(k) program is allows for the rehabilitation and repair of these properties. There is also the “Streamline (K)” Limited Repair Program that enables homebuyers to finance an additional $35,000 into your mortgage to improve or upgrade the home before you move in.
You will have 30, 90 or 180 days to move into the home you purchase through the Good Neighbor program, subject to HUD's determination of the condition of the home and the level of repairs that may be required. However, the 30th, 90th or 180th day from which you move in is considered the start date for the occupancy period. You must live in the home at least 36 months following that start date.
Considering you’re getting the house at half its market value, financing extra money for repairs at the same interest rate as the mortgage is a pretty good deal. This option also makes renovating and reselling every three years a viable option as a second income or project for your spouse, as long as you continue to meet all the qualifying criteria.
Quit or Get Laid Off
They won’t kick you out of your home or make you pony up 50 percent of the cost if you quit or get laid off from your job. When you buy the home you must certify that it is your good faith intention to remain employed in your current qualifying profession for one year from your purchase.
Move Out Early
You must live in the home as your primary residence for the full 36-month mandatory occupancy period. HUD requires that you sign a second mortgage and note for the discount amount, although no interest or payments are required as long as you live in the house for the full three years.
If you do move out or sell the house, you will have to repay HUD on a prorated schedule. Specifically, that means 1/36 of the discounted amount for every month short of the three year period. For example, let’s say the list price was $200,000, and you paid $100,000 for the house. You live there for two years and then sell it. 1/36 of $100,000 is $2,777. Multiply that by the 12 months short of your requirement, and you’ll owe $33,333.
There are no exempting reasons to get out of this requirement—even if you lose your job or get transferred elsewhere. You should know that HUD views the occupancy obligation very seriously and pursues violators to the fullest extent of the law, including fines, prevention from qualifying for FHA loans in the future, notifying your employer, and criminal prosecution for fraud.
New/Previous Homeowner Requirement
This program is great for first time homebuyers, but you may also qualify if you’ve owned a home in the past. The key here is that you may not have owned a home within one year of submitting an offer for a Good Neighbor home.
One perk or drawback, depending on your nature, is that the price is what it is—there’s no negotiation. You must offer the exact HUD list price when bidding on any property listed under the Good Neighbor program. Then you get a 50 percent discount off of that list price. Also note that you are required to use a Real Estate Broker or Agent to buy a GNND Home.
For more information, check out these resources:
- http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndabot.cfm
- http://portal.hud.gov/portal/page/portal/HUD/topics/hud_homes
- http://www.youtube.com/watch?v=hXUUOBzAT7E
Kara Stefan is a freelance financial writer and author of Head of Household: Money Management for Single Parents. You can find her at Linkedin or Kara Stefan Communications.
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