Another option: After three years, the owner can get a cash-out refinance. That's what a client of Michael Becker's did. Becker, a mortgage banker for Happy Mortgage, in Lutherville, Md., underwrote a home loan for a teacher who bought a house under the Good Neighbor Next Door program in 2006.
"She was a teacher who racked up a ton of student debt," Becker says. "Her whole reason for doing it was to be able, when the three-year period was up, to refinance and pay off her student loans, which she was able to do."
If the owner moves out in less than three years, the FHA can charge a prorated portion of that silent-second mortgage. HUD says it prosecutes cheaters.
Finding these homesListings of houses for sale under the program can be found on the HUD Homes page by clicking on your state. Houses must be purchased through a real estate agent.
"I would have the buyer find a good, knowledgeable realtor that understands the GNND program, as they will have to go through a realtor to submit a lottery bid online," says Jesse J. Garza, HUD coordinator for Century 21 Mike Bowman Inc., in Grapevine, Texas.
When a house goes on sale under the program, HUD accepts offers for five days. If more than one person makes an offer during that period, the buyer is picked via random lottery. All bidders are required to offer the same amount. New houses are offered for sale under the program every week.
With so many foreclosures in recent years, you might expect Good Neighbor Next Door to sell a lot of houses. That's not the case.
On Sept. 21, only one house in California was for sale under the Good Neighbor Next Door program -- a 1,057-square-foot, three-bedroom house in Riverside, listed at $140,000. Three houses were available in Texas. Meanwhile, New York and Florida did not have homes for sale under the program.
So the four biggest states -- with nearly one-third of the nation's population -- had a total of four Good Neighbor Next Door houses for sale Sept. 21.
In the 10 months from last October to the end of July, 446 homes were sold nationwide under the program. Compare that to fiscal year 2000, when the FHA sold 2,223 houses under the program. Sales have declined almost every year since.
A HUD spokesman says HUD has not tracked the reason for the decrease in sales.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.
Create a news alert for "real estate"