Program That Can Be Used for GNND

Yes, under the Good Neighbor Next Door (GNND) program, the borrower is permitted to include customary and reasonable closing costs in the mortgage amount. When calculating the maximum mortgage amount for a GNND transaction under Section 203(k), for example, the calculation includes the Adjusted As-Is Value plus financeable repair costs, fees, reserves, and closing costs, minus the $100 down payment. This feature, combined with the low down payment, minimizes the upfront capital required from eligible law enforcement officers, teachers, and firefighters to purchase homes in revitalization areas.

When ordering an FHA case number for a HUD REO property purchase using these incentives, the mortgagee must select specific processing types in the FHA Connection system. The mortgagee must select “Real Estate Owned w/Appraisal” for the Processing Type. Additionally, they must enter the prior case number of the HUD REO property, which is located on the top right-hand corner of the Form HUD-9548 sales contract. This links the new loan application to the existing HUD property record. For the $100 Down program specifically, the mortgagee must enter “Yes” in the designated field.

The primary document that establishes the purchase price, the discount amount, and eligibility for the $100 Down or GNND incentives is Form HUD-9548, “Sales Contract Property Disposition Program”. Line 4 of this contract specifies the down payment amount, which should reflect $100 for these specific programs. For GNND transactions, Line 8 of the form specifies the discount percentage applied to the purchase price. The mortgagee is responsible for obtaining this form and any applicable addenda to verify that the borrower and property qualify for the specific program entered on the sales contract.

The 50 percent discount provided under the GNND program is treated as a form of secondary financing, often called a “silent second” mortgage. When processing the loan in the FHA Connection (FHAC) system, the mortgagee must enter “Yes” in the Secondary Financing field. They must verify that the amount entered matches the discount by which the sales price was reduced. Furthermore, the mortgagee must identify the “Federal Government” as the Source of Funds and enter “HUD GNND” as the Source Name to accurately reflect the nature of this government-subsidized incentive.

To calculate the mortgage amount for a GNND purchase, the lender must first determine the “discounted purchase price.” This is derived by reducing the contract sales price found on the sales contract (Form HUD-9548) by the 50 percent discount. This discounted price is then used as the purchase price to determine the Adjusted Value. For a standard Section 203(b) loan, the maximum mortgage amount is calculated by simply subtracting $100 from this Adjusted Value. This calculation ensures the loan reflects the discounted price while incorporating the special $100 down payment incentive provided by the program.

If the repairs required to bring the property up to FHA standards exceed the $11,000 limit allowed under the Section 203(b) Repair Escrow program, the borrower must utilize the Section 203(k) Rehabilitation Mortgage Insurance Program. This program is specifically designed for properties that do not qualify for the standard 203(b) loan due to extensive damage or being “uninsurable” in their current state. Under the GNND or $100 Down incentives using Section 203(k), the maximum mortgage is calculated based on the Adjusted As-Is Value plus financeable repair costs, minus the $100 down payment.

If a HUD REO property purchased under these programs does not meet the Minimum Property Requirements (MPR) in its as-is condition, but the repairs cost $10,000 or less, the transaction is processed as a Section 203(b) with Repair Escrow. In this scenario, the lender calculates the maximum mortgage amount by subtracting $100 from the sum of the Adjusted Value plus 110 percent of the estimated cost of repairs. It is critical to note that the total escrow amount, which includes the 10 percent contingency reserve, cannot exceed $11,000. If repairs exceed this, the 203(k) program is required.

While both programs allow for a minimal down payment, the $100 Down incentive is distinct from the Good Neighbor Next Door program. The $100 Down incentive allows a borrower to purchase a HUD REO property with FHA-insured financing with a down payment of $100, but it does not include the 50 percent price discount associated with GNND. The $100 Down incentive is generally available for HUD REO properties when specified in the listing, whereas GNND is restricted to specific professions purchasing in designated revitalization areas. Both incentives, however, utilize similar FHA loan products like Section 203(b) or 203(k).

The Good Neighbor Next Door (GNND) program is a special sales incentive designed to encourage homeownership in revitalization areas. This program permits eligible full-time law enforcement officers, teachers (pre-K through 12th grade), firefighters, and emergency medical technicians to purchase specifically designated HUD Real Estate Owned (REO) properties. The primary financial benefit is that these homes are offered at a 50 percent discount from the purchase price. Furthermore, when these borrowers utilize FHA-insured financing, they are eligible to purchase the property with a minimum down payment of only $100, significantly reducing the upfront cash required to close.

Transactions for both Good Neighbor Next Door (GNND) and $100 Down sales incentives may be processed under three specific FHA mortgage programs, depending on the condition of the property. If the property meets the Minimum Property Requirements (MPR) in its “as-is” condition, the standard Section 203(b) program is utilized. If the home requires minor repairs costing no more than $10,000 to meet MPR, the Section 203(b) with Repair Escrow program is used. Finally, if the property requires extensive repairs exceeding the escrow limit or is “uninsurable” in its current state, the Section 203(k) rehabilitation program must be used.