A number of local, state and federal programs offer eligible teachers steep discounts on homes and attractive mortgage terms. The Good Neighbor Next Door program, for example, sells homes for 50% off the appraised value. Other programs offer down payment assistance, homeownership grants and mortgage credit certificates.
However, programs are not always easy to navigate. Here's what you need to know if you want to pursue one.
The Good Neighbor Next Door Mortgage Program
The Good Neighbor Next Door program offers Department of Housing and Urban Development-owned single family homes to eligible buyers for 50% off the list price. Not all HUD homes are designated for the Good Neighbor Next Door program and must be located in a revitalization area. You can search for homes on HUD's website.
Good Neighbor Next Door eligibility and benefits. Teachers planning to buy a home with this program must be employed full time in a state-accredited public or private school for students in prekindergarten through 12th grade. The school must serve students from the area where the home is located.
If you're eligible, you can buy a qualifying home for half of the list price using a Federal Housing Administration, Veterans Affairs or conventional mortgage. If you qualify for an FHA loan, the down payment requirement is just $100. You can also use an FHA 203(k) mortgage to borrow additional funds to rehabilitate the home if it needs more than $5,000 in repairs.
The discount is given in the form of a silent second mortgage. You'll need to sign this note, but no interest or payments are due on it so long as you occupy the home as your sole primary residence for a full three years from the date of occupancy. Your date of occupancy will be the 30th, 90th or 180th day after purchase, depending on how much work is needed to make the home livable.
You do not have to maintain the same job for the required occupancy period. Changing jobs after the purchase does not affect eligibility, but you still need to complete the required occupancy.
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After the 36th month of occupancy, you will be released from all obligation to repay the second mortgage. At that time, you are free to remain in the home or sell it and keep any profit.
If you fail to complete the required occupancy, you will be responsible to pay back the discount on a prorated basis. You may face administrative sanctions such as being barred from participating in other federal programs.
Buying a home through Good Neighbor Next Door. If all of this sounds fantastic, it certainly can be. "It's a great program for people who can use it," says Kentucky real estate broker Laine Bowling. "The financial risk is low. Fifty percent off leaves you a big cushion to do major renovations if needed and still break even if you decide to sell the home."
Watch HUD listings to find a home. Compared with the number of homes for sale in general, only a limited number of homes are available through this program. You might find 50 eligible homes available for sale across your entire state on a given day, or you might find just a few -- or none.
Connect with an agent or broker. Once you're ready to see if this program might work for you, you'll need to get connected with a real estate professional who can usher you through the process. Only a registered HUD selling broker can make an offer on a Good Neighbor Next Door Home. You can use the broker search tool on HUD's website.
Submit a bid. You won't be pulled into a bidding war on these homes. The sale price is nonnegotiable.
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Manage the process. "Once you're picked," says Bowling, "there is paperwork and a strict timeline." If you fail to comply with requirements, you may lose your chance to buy the home.
Depending on the condition of the home you buy, you may need to maintain your current residence for up to six months before you're able to move in. Not all homes are immediately inhabitable. HUD will provide a list of required improvements.
"It was stressful," says Cassidy Ruhling, a Good Neighbor Next Door program participant. She had to continue paying rent while managing the loan application and renovation processes, both of which were unfamiliar to her. She spent weeks seeking referrals, interviewing general contractors and comparing bids. Once her loan was finalized, the renovation funds were released to a HUD custodian. As work was completed incrementally, HUD inspected it and then wrote a check to the contractor for that portion of the total expense.
Other Teacher Homebuying Programs
The Good Neighbor Next Door program is not the only option for teachers seeking homeownership programs. In fact, federal, state and local programs exist nationwide.
Teacher Next Door is one resource for identifying and navigating the many programs out there. The program offers grants of up to $6,000 and down payment assistance of up to $10,681 for qualifying teachers. Additionally, the program helps buyers identify government and private programs (including grants and down payment assistance) they might qualify for, secure financing and complete a home purchase.
According to Steve Parks, Teacher Next Door national director, there are extensive homebuyer assistance programs all over the country. "The matrix is intense. Every location and program has its own criteria," says Parks.
Some state or local programs include:
Other Homebuyer Assistance Programs
Many down payment assistance and grant programs are available to anyone who qualifies, not just teachers. Qualification is often based on income limits, location and purchase price, and other restrictions apply.
Some cities and counties offer deferred loan programs to help with the down payment and/or closing costs -- for example, the Homebuyer Downpayment & Closing Cost Assistance program in San Diego County or the Low Income Purchase Assistance Program in Los Angeles. Typically, these loans are available to buyers whose income is below a threshold. The loan limit is usually a percentage of the purchase price, up to a dollar amount cap. Usually, payments are deferred until the home is refinanced or sold, the first mortgage is paid off, or the borrower no longer occupies the home as a primary residence.
In some programs, the down payment assistance is a nonrepayable grant or forgivable loan. The grant or forgivable loan can become repayable under certain circumstances, such as if you fail to complete an occupancy requirement, you sell or refinance the home, or you open a line of credit against the home.
To find programs you may qualify for, search for down payment grants locally or ask a licensed real estate agent. You can also use HUD's local programs page or the National Council of State Housing Agencies to find programs in your state.
"These programs are out there," says Bowling. "They're wonderful when they work out."
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