Buying a home through Good Neighbor Next Door: Who it’s for and how it works

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Believe it or not, there’s a way to buy a home for half off the list price, and with a down payment as low as $100. For qualifying workers in community-based professions, the federal Good Neighbor Next Door program makes this home-buying scenario possible.

What is the Good Neighbor Next Door program?

Good Neighbor Next Door is a community revitalization program, sponsored by the U.S. Department of Housing and Urban Development (HUD), for teachers, firefighters, law enforcement officers and emergency medical technicians buying a home in a specific area. Eligible homebuyers in these professions can purchase a qualifying HUD home for 50 percent off the list price as long as they agree to live in the home for three years.

The Good Neighbor Next Door program exists to make homeownership more affordable for public servants while helping to revitalize certain neighborhoods. There are a few limitations, however, including a smaller supply of available homes.

Who is eligible for Good Neighbor Next Door?

Among the criteria for eligibility, teachers and first responders must certify that they plan to remain employed in their profession for at least one year after their closing date, and buy a home within community they serve.

  • Teachers – You must teach full-time for a state-accredited public or private pre-kindergarten through 12th-grade school, and the home you plan to buy must be within your school’s district. If you work for a private school, your principal needs to provide proof that at least one student from the school lives in the neighborhood where you plan to buy the home.
  • First responders – You must be a sworn law enforcement officer, firefighter or EMT working full-time for a federal, state, local or Indian tribal government agency. (This excludes civilian personnel, dispatchers and volunteers.) The home you plan to buy has to be within your agency’s jurisdiction.

How does Good Neighbor Next Door work?

Here are the steps involved in the process of buying a home through Good Neighbor Next Door:

1. Determine your eligibility

To recap, you must be a teacher, law enforcement officer, firefighter or EMT buying a home in a HUD-designated revitalization area to participate in Good Neighbor Next Door. The area you buy in must also be the location you serve through your profession. You don’t need to be a first-time homebuyer, but you won’t qualify if you or your spouse owned a home within 12 months of your bid date. Past participants in the HUD Good Neighbor Next Door program are not eligible, either.

2. Get preapproved for a loan

Good Neighbor Next Door requires that you sign two mortgages: One is the mortgage from your lender financing the portion of the home you’re paying for (half-off list price); the other is a “silent” second mortgage that covers the discount, which has no interest and requires no payments or mortgage insurance on your part.

Once a HUD-qualifying home is listed, you have just seven days to place a bid, so it’s essential to get preapproved for a mortgage beforehand. Your choice of financing is up to you, but you’ll need to obtain an FHA loan if you want to be eligible for the $100 down payment.

The credit requirements for a mortgage will vary by lender, but most look for a minimum credit score of 560 to 580, according to Bruce Arrant, owner of Good Neighbor Next Door Realty in Denver, Colo.

3. Work with a HUD-registered real estate broker

Only brokers designated by HUD can submit a bid for you on a home. You can find a HUD-registered broker in your area through HUD online.

4. Start looking for a home

Eligible homes are listed online through HUD each week. You can search by state, county, city and even street, and in specific price ranges or for a certain number of bedrooms or bathrooms. Your HUD-registered broker might be able to sign you up for new listing notifications, as well.

Note that all homes are sold “as is,” so you won’t be able to negotiate repairs before you buy.

5. Put in a bid

Once you’ve found a home you like, your broker will submit a bid on your behalf in the amount of the full list price; HUD will apply the 50 percent discount if your bid is chosen. HUD selects winners by random lottery.

6. Submit paperwork and earnest money

If the home is awarded to you, you’ll complete purchasing paperwork and pay an earnest money deposit totaling 1 percent of the list price, at minimum $500 but no more than $2,000.

The earnest money deposit must be made within two business days of winning the home, and be either a cashier’s check, certified check or money order.

7. Close on your new home 

“You can expect to close on your new home within 30 to 45 days of winning the lottery drawing,” Arrant says. “Once the process starts, everything moves very, very quickly.”

If the home requires extensive repairs, HUD will give you up to six months to make them before you move in and start fulfilling your three-year residency requirement.

Note that HUD won’t pay for any of the closing costs or your broker’s commission, so you’ll need to have these funds prepared ahead of closing if you’d prefer to pay upfront. You can also finance these expenses as part of your mortgage if you don’t have the cash handy. 

Good Neighbor Next Door pros and cons 

Weighing the benefits and pitfalls of Good Neighbor Next Door can help you decide whether the program is right for you.

Pros

  • You save 50 percent on the price of a home if you qualify for the program.
  • You’ll put as little as $100 down if you use an FHA loan to buy the home, and you can finance the closing costs.
  • You can roll your repair costs into the mortgage when you use a renovation loan such as an FHA 203(k) loan, which allows you to borrow up to 110 percent of the home’s appraised value to make upgrades.
  • You can build wealth quickly. “This is a life changer. This is winning the lottery. This is money for retirement,” Arrant says.
  • You’ll help revitalize a neighborhood, which in turn could help improve home values.

Cons

  • The housing stock is extremely limited to just a handful of homes, as the home needs to be a HUD-owned property in a declared revitalization area. (The current foreclosure moratorium has exacerbated this issue.)
  • You have to act quickly. Qualifying homes stay listed for only seven days. After that, they go to the general market at full price.
  • You’ll lose money if you move out too soon. If you move out before the three-year tenure requirement is up, you’ll have to repay HUD to cover a prorated balance of your 50 percent discount based on what you still owe. So, if you received a $50,000 discount on a $100,000 home and sell it after 18 months, HUD will take $25,000 — half the discount — from the proceeds of the sale.
  • You’re competing with other buyers. If more than one person puts in a bid on the house, the buyer is selected by random lottery. So, “if there are three people interested in the same house, each one has a 33 percent chance of being chosen,” Arrant says.
  • Refinancing is tricky. It’s possible to refinance your mortgage, but only under certain conditions. Since your home has two mortgages, HUD will agree to a refinance if you’re looking for an FHA 203(k) loan, trying to get a lower interest rate, or in order to keep you from defaulting on your first mortgage.

Alternatives to Good Neighbor Next Door

While the Good Neighbor Next Door program can be an option for certain types of homebuyers in specific areas, there is a very limited inventory of homes to choose from. Here are alternatives to consider:

  • Private and nonprofit programs – The national Homes for Heroes program is one example that provides real estate services and housing assistance to first responders, military members and veterans, medical professionals and teachers.
  • Government loans – FHA loans, VA loans and USDA loans are low- or no-down payment alternatives for first-time homebuyers, military members and veterans and others.
  • Down payment assistance programs – Private lenders as well as government programs offer grants and loans that community-based professionals can use to cover all or part of a down payment. You can search what options might be available to you on com.
  • Union help – Some labor unions, including United Federation for Teachers, have partnerships that can provide assistance to help members become homeowners.
  • Assistance for nurses – Assistance programs like the Everyday Hero Housing Assistance Fund are available to help nurses and other workers like police officers and firefighters.

Learn more: 

Written by
Autumn Cafiero Giusti
Contributing writer
Autumn Cafiero Giusti is an award-winning journalist with over two decades of professional experience. She writes about mortgages, real estate and banking.
Edited by
Mortgage editor