What is the FHA Good Neighbor Next Door Loan?
The FHA Good Neighbor Next Door loan program is a unique mortgage option designed to provide deeply discounted home financing to the people who work to enrich and protect our communities.
School Teachers, Emergency Medical Technicians (EMTs), Firefighters, Police Officers and other public service workers may be eligible for this special loan program. Offering all the benefits of an FHA loan, including low minimum down payment and lenient FICO requirements, the Good Neighbor Next Door (GNND) program gives mortgage professionals a way to reach these borrowers with a unique and affordable home buying option.
FHA Good Neighbor Next Door Loan – The Basics
- Available to school teachers and first responders (firefighters, EMTs, law enforcement professionals)
- The Department of Housing and Urban Development (HUD) offers 50% off the list price of eligible homes. In return, the homeowner must use the property as their sole residence for a minimum of 36 months
- Eligible properties are single-family homes located in revitalization areas and listed exclusively for sale through the GNND Sales program. Properties listed through the program are available for a limited time (seven days), after which they are marketed to the general public at full price
- HUD requires the borrower to sign a second mortgage and note for the discount amount. No interest or payments are required on this second mortgage as long as the borrower fulfills the three-year occupancy requirement
- Available in conjunction with the FHA 203(b) or FHA 203(k) programs, as well as any other loan falling under the FHA umbrella
- Down payment is only $100
- Closing costs may be financed
- Available to first time and repeat buyers
- All homes sold “as-is,” without warranty
- Primary residence only
What are the benefits?
- $100 Down when purchasing a GNND home with FHA financing, the minimum down payment is only $100
50% Off List Price
- Eligible borrowers can buy a GNND home at 50% below list price. For example, if a GNND home is listed for $100,000, the borrower can purchase the home for $50,000. The borrower is required to sign a second mortgage for the discount amount. No interest or payments are required on the “silent second” mortgage as long as the borrower uses the home as his or her sole residence for 3 years (36 months)
Finance Closing Costs
- Closing costs may be financed through the FHA GNND program, helping reduce the borrowers’ upfront expenses
Who is eligible for an FHA Good Neighbor Next Door Loan?
Eligibility for the FHA GNND program is determined in two steps: First, the borrower must meet eligibility requirements to purchase a home through the GNND Sales program. Second, the borrower must meet the requirements of the FHA loan they plan to use to finance the purchase.
To be eligible to purchase a home through the GNND Sales program, a borrower must work full-time in one of the following positions and meet the underlying criteria.
Law Enforcement:
- Employed full-time by law enforcement agency of the federal government, state government, unit of land government, or an Indian tribal government
- And, in carrying out such employment, are sworn to uphold, and make arrests for violations of, federal, state, tribal, county, township or municipal laws
Teaching:
- Employed full-time as a teacher by a state-accredited public school or private school that provides direct services to students in grades pre-kindergarten through 12
- And, the public or private school where you are employed must serve students from the area in which the home you are purchasing is located
Firefighter/EMT:
- Employed full-time as a firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or an Indian tribal government serving the area where the home is located
Scenarios when the FHA GNND Loan a good option?
Whether they’re a first-time buyer or repeat buyer, the GNND program offers 50% off the listed price of select homes for a limited time. Borrowers who take advantage of these discounts then secure FHA financing and enjoy the many benefits of the FHA loan, including an exceptionally low ($100) down payment.
Borrowers who meet the employment requirements for a GNND home purchase, the FHA GNND loan program can provide an ideal solution for the following borrower scenarios:
- Not enough cash savings for a traditional down payment and/or closing costs
- Less-than-perfect credit rating
- Looking to purchase a home that will serve as a primary residence for at least 3 years
Why was the FHA GNND Program Created?
The Good Neighbor Next Door program is designed to do two things: help revitalize communities and provide affordable homeownership to public school teachers and first responders – community professionals who provide valuable services but typically earn lower salaries.
Community Revitalization
The homes available through the GNND program are located in revitalization areas, meaning they are in less-developed areas or in neighborhoods that were depressed and are undergoing improvements. The GNND program serves to help communities rebuild after economic setbacks and reduce the risk of neighborhood blight. It can also help boost area property values, helping neighbors and longtime area residents build equity in their homes.
Affordable Homeownership
With the program’s 50% discount off the home’s list price, GNND buyers can enjoy substantial savings. And when financed through an FHA loan program, HUD requires a down payment as low as $100. The low purchase price and low down payment requirement gives borrowers the ability to enjoy long term savings. Furthermore, closing costs may be financed into the loan, allowing the borrower to save on upfront costs, as well.
Buying a Home with the FHA GNND Program
The process begins with identifying whether or not the borrower is eligible for the Good Neighbor Next Door program based on their employment. If they work in one of the eligible positions (teacher, firefighter, EMT, police), then they can access the GNND Sales program through HUD and view current available listings.
These home listings will be offered at 50% off the list price seven days from the date they joined the program. After the seven day period, the homes will be marketed to the general public for sale at the full list price.
Because the homes are only offered at a discount for a very short period of time, borrowers will need to move quickly if they want to take advantage of the significant savings. For this reason, it’s important to stress the need to get pre-approved for FHA financing before they begin their home search.
Once the borrower finds a home through the GNND Sales program, they will need to follow through with securing their FHA financing through an approved lender.
Refinancing Options
Refinancing is possible under the FHA GNND program. However, when a borrower attempts to refinance the first mortgage, the lender typically will expect the new loan to take its place in first position. In order for that to happen, HUD must subordinate its position to the new first mortgage. In most cases, HUD will only approve a refinance and subordination under the following circumstances:
- If the refinance will provide the borrower with a lower mortgage rate or change in the term of the loan
- If the purpose of the refinance is to obtain an FHA 203(k) Renovation Loan
- If the refinance can prevent the borrower from defaulting on the first mortgage
Other Programs to Explore
If the FHA Good Neighbor Next Door loan program does not work for a scenario perhaps one of these programs will better suit your borrowers’ needs:
- VA Fully Amortized Fixed, for eligible veterans and active duty military ready to take advantage of 100% financing and no private mortgage insurance
- Fannie Mae HomeReady, designed to help low- to moderate-income borrowers achieve homeownership for as little as 3% down
- FHA Streamline Refinance, for current FHA borrowers ready to refinance to a new FHA loan
