Good Neighbor Next Door Program: How It Works

The Good Neighbor Next Door program might sound almost too good to be true: Teachers, law enforcement officers, firefighters and emergency medical technicians can buy homes for 50% off the list price and finance the purchases with down payments as low as $100.

But there's a big limitation to understand before getting your hopes up. The program may have no homes, or only a handful of properties, available for purchase in your state.

Here's what you should know about the program, as well as some alternatives to consider if you want help buying a house.

What is a Good Neighbor Next Door home?

The homes that are available for purchase are foreclosed properties that were financed by FHA mortgages, which are loans insured by the Federal Housing Administration. After foreclosure, the U.S. Department of Housing and Urban Development, or HUD, becomes the owner of the properties and offers them for sale.

The program requires participants to take out two mortgages — one finances your 50% discounted share of the list price and the “second silent mortgage,” covers the remaining 50% discount amount. You’re not required to make any principal or interest payments on the second mortgage, as long as you live in the home as your primary residence for a minimum of 36 months. Once you hit that threshold, the second mortgage is released and no more HUD requirements remain.

Good Neighbor Next Door homes are all located in neighborhoods designated as “revitalization areas” to expand homeownership opportunities. HUD works with local governments across the country to designate revitalization areas in neighborhoods that have relatively low median household income, high foreclosure rates and low homeownership rates.

Although there are many revitalization areas, the supply of homes for the Good Neighbor Next Door program is very limited.