Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We are a two-teacher household, which means we both have college degrees, student debt and not enough cash to buy a home in our high-cost area. Will we always be renters?
Answer: As real estate values have risen in some areas, it has become increasingly difficult for middle-income households to buy property. Even in the most expensive locations, everyone still wants teachers, firefighters and law enforcement officers, among other crucial professionals.
There’s no perfect resolution to this problem, but there are a number of efforts to make home buying more plausible for professionals with limited incomes. One of the most important is HUD’s Good Neighbor Next Door program.
The FHA, which is part of HUD, insures mortgages made by private-sector lenders. Unfortunately, a small percentage of FHA loans fail, and when they do, several things happen: The home is foreclosed, the lender receives cash from HUD to make up for losses and HUD gets the title to the property.
Under the Good Neighbor Next Door program, HUD sells these homes in revitalized areas with a 50-percent discount to “qualified” buyers and that could be you. As HUD explains:
“Law enforcement officers, pre-kindergarten through 12th grade teachers, firefighters and emergency medical technicians can contribute to community revitalization while becoming homeowners through HUD’s Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a 50 percent discount off the list price of the home. In return, you must commit to live in the property for 36 months as your sole residence.”
Potential buyers, working through local real estate brokers, can bid on homes from lists of eligible properties. If you buy, the down payment is as little as $100 and closing costs can be financed. The property is financed with a first mortgage equal to 50 percent of the acquisition price and a “silent second” for the balance. There is not interest or monthly payment for the second loan if you use the property as your exclusive residence for three years. Once 36 months of occupancy have passed, the silent second disappears.
The program has limitations. Since there are far fewer foreclosures than at the height of the financial meltdown, inventory is smaller than in the past. Foreclosure homes may need a lot of work / sweat equity, and because inventory is small, you may not be able to find a property in the locations you prefer.
In addition to the HUD plan, check with local lenders to see if you qualify for help in the form of a grant, down-payment assistance or an interest-rate reduction, help which can be equal to $10,000 or so. There are nearly 2,500 such plans nationwide.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage” (Kindle 2016). Have a question? Please write to [email protected].