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Good Neighbor
Next Door:
Mortgages For
Special People
Next Door:
Mortgages For
Special People
One of the many programs designed to revitalize communities is HUD's Good Neighbor Next Door.
Law enforcement officers, pre-Kindergarten to grade 12 teachers, firefighters, and emergency
medical technicians, can purchase a HUD house and get a substantial discount of 50% off the list
price.
The basic features of the program are:
- The property must be located in a revitalization area.
- The property is listed exclusively through the Good Neighbor Next Door program. Properties
are available exclusively for five days. - If more than one person submits an offer on the same house, there will be a random draw.
- The purchaser needs as little as $500 for the down payment, but no more than $2,000.
- The homeowner can sell after 3 years and keep the profit.
- The contract is not violated when a purchaser leaves his or her employment, as long as the
homeowner remains in the house for 3 years. - You do not have to be a first time home buyer. However, you must not have owned a house
one year prior to the purchase.
HUD requires the homeowner to sign a second mortgage for the discounted amount. This is referred
to as a silent second. There is no interest, and no payment on the second as long as the
homeowner keeps his or her side of the bargain.
If the homeowner moves out of the house before the contract term of 3 years, the silent second
mortgage has to be paid off on a prorated basis. For example, if he stays for 18 months, he will be
required to repay 50% of the second mortgage. In this case, if the house was listed for $200,000,
the selling price to the homeowner was $100,000. The prorated amount of the second will then be
$50,000.
Annual Certification
When the homeowners purchased the house under the Good Neighbor Next Door program, they
agreed to live in the house for three years, as their principle residence. Homeowners are required to
sign a certification every year. The annual certification is mailed to the homeowners. They sign, date
and return the form. If they do not return the letter, a second letter is mailed. Failure to return the
annual certification letter will result in an investigation. An investigator will may a personal visit to the
house. If the investigator suspects fraud, the file will be turned over to the Inspector General for
further proof of wrongdoings and possible prosecution. Falsifying information is a felony.
Penalties are substantial if a homeowner is found guilty. The fine can s up to $250,000, in addition,
the guilty party can expect to spend two years in a federal prison.
Military Duty
There is clemency for homeowners who are called to military duty. If they find a tenant, they can rent
the house while they are away. They have to provide proof of their military service to the mortgage
servicer.
Economic Benefits
The Good Neighbor Next Door program brings employed professionals into low to moderate income
communities. It helps reduce some of the mounting housing inventory and brings economic
resurgence to the community.
Releases
At the end of the three-year contract the HUD's silent second mortgage will be released if all of the
condition are met. These terms and conditions include:
- The homeowner has completed, signed and returned all annual certifications.
- The homeowner is not under investigation by the office of the Inspector General.
- The homeowner is in full compliance with all Good Neighbor Next Door regulations.
Releases are mailed to the county office thirty days after the end of the contract. This will facilitate
having the silent second mortgage removed from the property.
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| Refinancing A Good Neighbor Next Door Mortgage Refinancing a Good Neighbor Next Door mortgage is straight forward. However, it might not be worth the time and effort during the three year occupancy period. There just is not enough time for the equity to build up. Let's take an example. The house was listed for $200,000 and the homeowner was able to purchase for $100,000. The downpayment was $5,000 and the first mortgage carried a rate of 5.01%. This gives a monthly mortgage payment of only $510.56. Given the current economic conditions for the country and the challenges of the housing market, the appreciation on the house will be about $6,000. So here's what the numbers would look like. Market value after 3 years $206,000.00 Less: Balance on the first mortgage - 90,583.93 Balance on the silent second mortgage -100,000.00 Available equity in the house after 3 years $15,416.07 In order to make the refinancing of the house feasible, the homeowner will have to wait until the silent second mortgage is discharged. This process generally takes about 30 days. After this is done, there will only be the first mortgage on the house, and homeowner will have an additional $100,000 available. The Good Neighbor Next Door program allows the homeowner to accumulate some net worth in a short period of time. In our example, the government is basically paying the homeowner over $33,000 a year to live in the house. By most standards, this is a good deal |
