The U.S Department of Housing and Urban Development has a special program called the Good Neighbor Next Door program available exclusively to Teachers (Pre K through 12th grade), Firefighters, Emergency Medical Technicians and Police Officers. If you fall into one of these categories, you may be able to purchase a HUD home in certain areas at a 50% discount off of the list price.
However, there is a very specific protocol that must be followed to bid on these homes, and there are some things that work differently than a normal transaction, even a normal HUD transaction. And there are also some geographic restrictions on where you can actually purchase a home with this program, depending on your occupation.
Firefighters and EMT's must purchase a home in the city they work for. So if you're a Dallas Firefighter or EMT, you can only purchase a home in the City of Dallas.
Teachers must also purchase a home in the district they work for. If you're a private school teacher, the home must be within the range of attendance. In other words, HUD will require a school adminstrator to verify in writing that the home is within the range of attendance of the students. It's unlikely that would be outside of a 10-15 mile radius.
Police Officers, however, are allowed to purchase a home wherever they want AS LONG AS the department they work for does not have any restrictions on where they are allowed to live. I know some departments require police officers to reside in the city or county in which they work, and HUD will require written verification of the department policy.
And as far as the property restrictions, only homes listed in certain "revitalization areas" qualify for this offer. Furthermore, not every single HUD home in the specific revitalization area qualifies for this program. HUD literally picks a few homes for this program and keeps these homes off of the market (they are not listed in MLS) and only publishes them on website of their local asset manager. For Texas and New Mexico, the asset manager is Southwest Alliance. For areas outside of Texas and New Mexico, contact HUD directly or visit them online at www.hud.gov.
In order to view homes that qualify for this program, follow these steps: NOTE: HOMES AVAILABLE THOUGH THIS PROGRAM ARE ONLY DISPLAYED SATURDAY THOUGH WEDNESDAY OF EACH WEEK. IF YOU DO A SEARCH ON THURSDAY OR FRIDAY, IT WILL NOT RETURN ANY SEARCH RESULTS!
- Go to the Southwest Alliance online property search engine.
- At the bottom where it says "Select A State" enter either Texas or New Mexico and then click the "search" button.
- Complete the required fields. (HINT: Since there are not many of these properties available at any one time, do a general search for the whole state and work your way down from there).
- AT THE BOTTOM where it says "Buyer Type", click "Good Neighbor Next Door".
- All homes available though this program will display.
OTHER RESTRICTIONS AND IMPORTANT THINGS TO KNOW:
- According to Southwest Alliance, the bidding process for this program is a "True Lottery", so the winning bid is chosen completely at random.
- The bidder can not have owned a home in the previous 12 months, nor can they be married to a person that has owned a home in the last 12 months.
- HUD allows for a $100 down payment IF the buyer obtains FHA financing. HOWEVER, this $100 down payment DOES NOT INCLUDE CLOSING COSTS OR REAL ESTATE COMMISSION. If the buyer obtains FHA financing, the closing costs and real estate commission MAY be rolled into the loan in most cases. If the buyer obtains another type of financing, such as conventional, a down payment may apply, plus the closing costs and real estate commission can not be rolled into the loan. Those costs vary, so call or email me for details.
- HUD creates a second lien in the amount of 50% of the sales price, which is released after THREE YEARS. If the home is sold within the first three years, the lien will be enforced, which, in effect, means the buyer will not get the 50% discount.
- HUD requires buyers to sign an affidavit of occupancy for the property for three years. Buyers MUST OCCUPY and MAY NOT RENT OUT the property during this time.
Most buyers, especially those without a large down payment, will probably find that FHA offers the best financing in this scenario. FHA loans typically require a credit score of at least 620. Additionally, FHA requires a buyer to have completed a Chapter 7 bankruptcy at least two years. Buyers currently in a Chapter 13 bankruptcy or consumer credit counseling must have completed at least 12 monthly payments to qualify. Buyers also must not have had a foreclosure or a short sale within the last three years. Two years of employment history are typically required, although not necessarily at the same job or even same line of work. Every situation is different, so contact me for a consultation and we will review your options.
SOME IMPORTANT THINGS TO KNOW ABOUT BUYING A HUD HOME IN GENERAL:
Many people don't even know exactly what a HUD home is. A HUD home is an FHA foreclosure, meaning the last person/people who lived there had an FHA loan and were unable to pay their mortgage, so HUD agreed to purchase the home from the original mortgage servicer in order to resell it.
It's a myth that HUD homes are always "trashed out", but often times the general maintenance has been overlooked, which may mean the home is in poor (sometimes VERY POOR) condition compared to other comparable homes in the neighborhood. In some cases, HUD may allow a repair escrow if they note certain damage to the home at the time of appraisal (which is done BEFORE the home is listed for sale). This repair escrow is added to the loan balance and the repairs must be completed within 30 days of closing. Only certain lenders allow repair escrows on HUD homes. In fact, many lenders do not make loans on HUD homes at all. That's why it's very important to work with a lender that is experienced with HUD homes. Otherwise, there's a good chance that you will have problems with the transaction.
For more information, contact me directly at (972) 978-3553 or click the link under my photo to email me directly.
The information that I used to write this blog was obtained from Southwest Alliance and HUD. Southwest Alliance may be contacted at (972) 788-0026.