No, that's not a misprint. It's a HUD program called Good Neighbor Next Door and it's designed to get valuable public servants into homes in their communities. If you buy a house under this program, you must commit to living in it for at least three years.
How does it work? Single family properties owned by HUD as a result of foreclosure of FHA-insured mortgages and located in a Revitalization Area are eligible for sale through special programs at discounts. Revitalization Areas are UD-designated geographic areas authorized by Congress under provisions of the National Housing Act. They are determined by household income, home ownership rate, and FHA foreclosure activity. When you buy one of these homes, you sign a second mortgage note for 50% of the property value. You don't have to make any payments on the second mortgage as long as you live in the home for at least three years, and no interest is charged. The second mortgage is paid off when you sell the home, and you get to keep any profit on the sale.
How do you take advantage of the program?
- First, check your eligibility.
- Then, find your financing. If you qualify for an FHA mortgage, your down payment is only $100 and you can finance your closing costs! You may also use conventional financing, a VA mortgage, orFHA rehab loans if the property needs some work. Knowing how much you can spend helps you narrow down your property search.
- Finally, find a property in your area. I checked mine to see if the only available homes were dumps in bad parts of town and was pleasantly surprised to find that wasn't the case. You are required to use a HUD-registered real estate broker who represents you and protects your interests. There is a link to a list of approved brokers on every property description page. You will have to deposit earnest money when you submit your offer.
How much can you save by buying this way? Well, let's look at a $300,000 home, and assume that you get 100% financing and live in the property for five years. Your payment is calculated on a $150,000 balance--at a 5.25% interest rate thats only $828 a month. On the $150,000 second mortgage you pay no interest--a savings of more than $45,000 over five years! In addition, if you get lucky and your home appreciates at 4% per year, in five years you have a value of about $365,000 and you get to keep that extra $65,000 if you sell the property. See, sometimes good guys (and gals) really do come in first.
