December 15, 2015 in Investing In Real Estate
I came across an article from the New York Times recently that was about a little known program where you can get a half price HUD homes if you quality. Now you have to admit; getting any house half price is a great deal. It’s an especially good deal if this house is your personal residence. This program is sponsored by the Department of Housing and Urban Development. It’s called the Good Neighbor Next Door Program. The essence of this program is that it deeply discounts foreclosure properties in specific areas that have been designated areas in need of revitalization.
So what’s the Catch?
There’s not really a catch, but buyers have to qualify for the program. These half priced HUD homes are only offered to certain emergency responders and full time educators who work in those areas. They must also agree to certain other terms.
Specifically you must be in law enforcement, full time teachers of pre-Kindergarten through 12th grade, emergency medical technicians or firefighters. The idea behind this program is that these groups of workers can contribute to community revitalization while becoming homeowners through HUD's Good Neighbor Next Door Sales Program.
Here Are the Requirements
- Buyers must agree to live in the property for at least 3 years
- You do not have to be a first time home buyer, but you may not have owned residential property for 1 year prior to buying one of these homes.
- Buyers must be able to qualify for a loan equal to the full price of the home even though they are getting a half priced home. If you can qualify for any FHA-insured mortgage program, your downpayment is only $100. You can also finance all of your closing costs. This program is a great way to get into an affordable home without a lot of money upfront.
- The mortgage will be for the half price amount, however there is what is called a “silent second” which goes away once the buyer has lived in the home for the required 3 years. No interest or payments of any kind are made on the “silent second” so long as all the requirements are met. If you do not fulfill the 3 year requirement, you will be required to pay an additional pro-rated amount where the purchase price is concerned.
- It has been reported that not only does HUD take steps to verify that these requirements are met, but they have prosecuted buyers that violated the 3 year rule.
Are there a lot of available properties? Apparently there aren’t. Remember that these properties are located specifically in areas earmarked for revitalization. However there are hundreds of these areas across the country.
It would appear that snagging one of the available properties could take a bit of patience and perseverance, but there is no denying that it would be worth if for the lucky buyers. Anyone can search for eligible properties at HUDHomestore.com. If there are multiple buyers for a single property, a lottery is held to randomly choose the buyer. If there is no buyer for a particular property then it will be offered to any owner occupant buyer at full price.
FHA 203 (k) Loans and this Program
If the house needs work then the potential buyer can apply for a FHA 203 (k) loan. With this loan program you can get the cost of the repairs rolled into the principle mortgage. For more information on the FHA 203 (k) Program check out this podcast I did a while back.
What’s the Downside?
The downside is that these homes are often in less desirable areas. If you remember, one of the requirements for folks eligible for this program was that to qualify for this program was that they must serve (work) in these areas. If you are lucky enough to find a property in what is more of a “fringe area” or an “up-and-coming area” that could actually work to your advantage.
Here’s the Huge Upside
Once you live in the property for the required 36 months and it's all nice and pretty, then you can sell the house and keep all the profits. Ca-ching!
This program isn’t for everyone, but for some people this is a great way to get into a home in the neighborhood you work in and have a big potential payoff one day when you sell the property.
Here are Some Other Facts
- You cannot negotiate the asking price; your price is 50% of HUD’s asking price
- You are not required to get an FHA mortgage to buy one of these properties
- There are no warranties provided
- You still have to make an earnest money deposit just like you would on any property. Remember that closing costs can be rolled into the mortgage.
- Only single family homes, condos and townhouses are eligible for this program (no multi-family properties)
What are your thoughts about this program?
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