Good Neighbor Next Door (GNND)

How It Works

When a borrower with a Federal Housing Administration (FHA) insured mortgage defaults and the home goes through foreclosure, the lender can convey the property to HUD in exchange for an insurance claim. HUD then resells these homes. Good Neighbor Next Door (GNND) sets aside some of them for public servants before they are offered to other buyers.

Under the federal regulations, an eligible buyer can purchase a designated home:

• At a 50% discount from HUD’s list price
• With a $100 down payment, if the purchase is financed with an FHA-insured mortgage. Buyers can also use an FHA 203(k) loan to fold repair costs into the mortgage.

The discount is not a simple gift. At closing, the buyer signs a second mortgage and note to HUD for the amount of the discount. The balance drops by 1/36th for each month the buyer lives in the home, and it reaches zero after 36 months. A buyer who sells the home or stops living in it early owes HUD the remaining balance.

Suppose a home is listed at $200,000. A GNND buyer would pay $100,000 and sign a $100,000 second mortgage to HUD. After 18 months of living there, $50,000 would still be owed if the buyer sold. After 36 months, nothing would be owed.

Who It Serves

To qualify, a buyer must be employed full time, both when bidding and at closing, in one of these roles:

Neither the buyer nor the buyer’s spouse can have owned residential property in the year before bidding, and neither can have bought a home through GNND or its predecessors. The buyer must also certify a good-faith intention to stay in the qualifying job for at least a year after closing. The regulations set no income limit. Homes are limited to single-unit properties in revitalization areas. HUD designates these areas under section 204(h) of the National Housing Act, using criteria set in the statute: very low household incomes, a high concentration of FHA foreclosures, or a homeownership rate well below that of the surrounding metropolitan area.

How to Access It

Eligible homes are listed on HUD’s HUD Home Store website. Bids must go through a real estate broker registered with HUD, along with an earnest money deposit of 1% of the list price, but no less than $500 and no more than $2,000. If several eligible buyers bid on the same home, HUD chooses a winner and two backups by lottery. During the three-year term, the buyer must certify every year that the home is still their only residence. Teacher and public employee housing covers other options for public servants.

History

HUD made its Officer Next Door sales program permanent in July 1999 and created Teacher Next Door in December 1999. Firefighters and emergency medical technicians became eligible in September 2005. A final rule published on November 1, 2006, and effective December 1, 2006, replaced both programs with GNND. HUD said the program’s purpose was to improve the quality of life in distressed urban communities by encouraging these public servants to buy and live in homes in the communities they serve.

Limitations

• Supply is small and unpredictable. Only certain HUD-owned homes in revitalization areas qualify, and HUD’s inventory rises and falls with FHA foreclosures. The regulations also cap GNND sales in a fiscal year at 5% of the FHA conveyance claims HUD paid in the prior fiscal year, though HUD can adjust that percentage. In a 2024 paperwork notice, HUD estimated that 392 respondents a year would complete the program’s forms.
• Many homes need work. HUD allows a later move-in date for homes that need significant repairs, but the buyer pays for those repairs. HUD does not pay the buyer’s closing costs or the selling broker’s commission.
• Lottery and strict occupancy rules. When more than one eligible buyer bids, the home is awarded by lottery. HUD can approve a temporary absence to prevent hardship, but selling or moving out before 36 months, even for a new job, means repaying the remaining second-mortgage balance.