The Good Neighbor Next Door mortgage program makes it possible to purchase a home at 50 percent less than the asking price. This program is available in certain areas that HUD considers a “ revitalization area” and on homes that were once FHA insured but are not foreclosed. The FHA has these homes on their inventory because the lenders made a claim on their FHA insurance and got the balance of what they were owed back in exchange for the deed on the house. Now HUD is trying to sell the home and help the community at the same time, which is how this program comes into play. This program is a great way to help the community and get housing at a much cheaper price. Before you jump in and sign the papers, you should know what is expected of you.
The First Mortgage
The first mortgage you obtain on the proper in the GNND program is the one that gives you the funds to purchase the home at the 50 percent discount price. You can secure any type of financing whether it is a government sponsored program or conventional financing; the loan you are eligible for is the one that will work with this home buying program. You are in control of the terms, rates, and all other details regarding this loan. You have to qualify for the program with the standard credit score, income and employment verification, along with your debt ratios. The GNND program has nothing to do with approving you for a loan; they simply provide the incentive to purchase the home.
The Second Mortgage
The second mortgage on the property you purchase is the remaining 50 percent that was discounted off of the price of the home. This mortgage is a “silent mortgage.” This means you do not pay any interest or principal on the loan. The second loan remains for the first three years that you own the property. If you fulfill the occupancy requirements of the program, which state that you cannot own any other properties during the time you are on the GNND program and you cannot leave the home for the duration of 36 months, then the second mortgage is forgiven after the 3 years and essentially disappears.
Failing the Occupancy Requirements
If you do not meet the occupancy requirements set forth by HUD in the Good Neighbor Next Door program, that second mortgage suddenly becomes less “silent.” You will not be responsible for the entire amount of the mortgage, but you will be responsible for a pro-rated portion of it. The prorated amount is based on the number of months you skip out the program before the 36 months are completed. For example, for every month that remains in the program, you will owe 1/36th of the amount of the second mortgage. As a standard example, if the amount discounted on the home was $100,000, you would owe $2,777 per month that you skipped out of the program early.
In addition to the financial penalties, you will face if you do not meet the occupancy requirements, HUD can prevent you from participating in any government programs in the future, including any FHA financing as well as any other federal programs. HUD takes the occupancy requirements of this program very seriously, which is why the penalties are so serious.
How HUD Knows
HUD knows if you are occupying the property you purchased with the GNND program via verification. They require each family to complete certification every year of the program to ensure that you are in fact living there. In addition, they have the right to conduct spot checks to see that you are living there. If it is discovered that you are not, you are responsible for that 2nd mortgage as discussed above as well as any fraudulent charges brought forth by HUD.
The second mortgage on the Good Neighbor Next Door program is something to take serious because it is in your name and you will sign it at the closing. It is not something to fear as long as you maintain the occupancy requirements set forth by HUD. In the event that you satisfy the occupancy requirements, the second mortgage goes away and you have nothing to worry about with the exception of the financing in the first mortgage that you took out in order to purchase the home.
The GNND program is a great way to get into a home with a very small price tag. If you know you can live in the same home for the next three years and you work in the community at one of the approved professions, it is worth looking into this lucrative program.