FHA Good Neighbor Next Door
Do you want a really, really good deal on your next home purchase? The FHA Good Neighbor Next Door program could save you up to 50% off the sale price of your new home! If you find a house you’re interested in and it’s listed at $250,000 and your real estate agent negotiates the price down to $240,000, you’d think you got a good deal. And that certainly is quite the discount. But your agent won’t be able to negotiate the sales price from $250,000 to $125,000. So how does this FHA program work?
FHA Good Neighbor Next Door Specialty Loan
Who is Eligible
The Department of Housing and Urban Development offers a special program called the Good Neighbor Next Door and lists properties in designated areas designed to help revitalize a community and the FHA mortgage can be used to finance the purchase. The FHA Good Neighbor Next Door initiative designates specific areas as eligible and buyers can indeed buy a home at half price.
The program is also designed for a specific class of individuals. Full-time law enforcement officials, teachers, firefighters and emergency medical technicians, or EMTs are eligible. If someone falls into one of these groups the individual must be working full time. School teachers must be employed by either a state-accredited public school or a private school teaching grades pre-K through 12th grade.
How it Works
Let’s take a look again at that $250,000 home. You take out an FHA mortgage for half that amount, or $125,000. You also take out what is sometimes referred to as a “silent” second for the remainder of the sales price. Your minimum down payment must be at least 3.5% of the initial loan amount and your monthly payments based upon current market rates and the initial loan. As it relates to the second note, you will sign a second note for the remaining balance but no payments need to be made nor is there any interest that accrues during that period. As long as the buyers remain in the property for at least 36 months, the second note is forgiven and does not have to be repaid, even if the owners sell the property at some point beyond the 36 month period. If the owners do sell the property or otherwise leave the home sooner than 36 months, HUD will collect the prorated balance due on the second.
Mortgage insurance is still required using an FHA mortgage based upon the first lien with both an upfront mortgage insurance premium rolled into the loan amount and an annual mortgage insurance premium paid in monthly installments. The GNND program is for a primary residence only.
Final Notes
All other standard FHA approval guidelines apply and buyers will be asked to provide documentation of not only their income but how long they’ve been employed. FHA guidelines ask for at least two years of full-time employment for this program. Paycheck stubs and W2 forms will be reviewed as well as copies of bank statements showing sufficient funds to close on the transaction. Finally, the GNND program requires buyers to use a real estate agent and not buy a home in a designated area without agent representation.
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