How Does a NACA Mortgage Work?
While buying a home might be a hallmark of the American dream, this milestone can be difficult to achieve. Becoming a homeowner often requires a large down payment and good credit to qualify for a loan with the best terms and interest rate. For many people, the barriers to homeownership are so great that they may never find a way to overcome them through traditional means.
Fortunately, there are an array of programs that target potential homebuyers who need help. These programs vary in scope, availability and requirements, but they all share a similar goal — helping families buy a home.
One such program is offered by the Neighborhood Assistance Corporation of America, or NACA. This organization helps some people buy a home with no money down and no minimum credit score requirement. Here are the ins and outs of NACA and its mortgage program.
- What is the Neighborhood Assistance Corporation of America?
- How does NACA’s Purchase Program work?
- Who qualifies for a NACA mortgage?
- Steps to getting a NACA mortgage
- Where can you find a NACA mortgage?
- NACA mortgage pros and cons
- Is a NACA mortgage right for you?
What is the Neighborhood Assistance Corporation of America?
While many homeowner assistance programs are initiated by a government agency, NACA is a nonprofit community advocacy program that focuses mostly on homeownership.
Founded in 1988, NACA has long lobbied and fought against predatory and discriminatory lending practices with the ultimate goal of helping borrowers with poor credit qualify for mortgages with fair terms and affordable rates.
NACA offers a wide range of homeownership assistance programs, including property renovation and foreclosure prevention, as well as a Home Save Program intended to help struggling homeowners avoid foreclosure by restructuring their mortgage to reduce interest rates and monthly payments.
How does NACA’s Purchase Program work?
With a NACA mortgage, consumers can buy a home with:
- No down payment
- No points or fees
- Zero closing costs
- No private mortgage insurance (PMI)
- No consideration of their credit score
Interest rates for this program are extremely competitive. As of Nov. 23, 2018, the interest rates offered on NACA mortgages were set at 4.375% for 30-year, fixed-rate loans and 3.875% for 15-year, fixed-rate loans.
These mortgages come with a post-purchase assistance program known as the Membership Assistance Program. This free program, offered in place of private mortgage insurance, provides homeowners with budgeting and financial advice that can help them improve their finances and remain in their homes. This program offers additional help as well, including financial assistance and temporary forbearance that can make it easier for people to stay in their homes when financial difficulties occur.
While traditional mortgage approval relies on consumer credit scores, debt-to-income ratios and income, individuals who apply for a NACA mortgage are evaluated based on their personal payment history and other factors regardless of their credit score. You can have poor credit and qualify, provided you meet all other requirements for the mortgage program.
Who qualifies for a NACA mortgage?
While getting a mortgage with a low rate and no fees sounds wonderful, it’s important to note how rigid the requirements for this program are.
The NACA mortgage program does not have income limits, but the organization has other requirements that gear the program toward consumers with moderate or low incomes. Potential borrowers with a household income below the median in their metro area can buy a property anywhere in that metro area with a NACA mortgage. Borrowers who make more than the median income can only use a NACA mortgage to buy a home in certain “priority areas.”
There are many other requirements for consumers who want a NACA mortgage. To qualify, borrowers:
- Cannot own another home at the time of closing on a NACA mortgage, nor can anyone in their household
- Must live in their home while they have a NACA mortgage
- Pay $20 to become a member of the NACA; once the mortgage closes, they must also pay a fee of $50 a month for a period of five to 10 years depending on the mortgage amount and other factors
- Pledge to take part in at least five membership activities a year, which can include joining a NACA advocacy program or protest, volunteering in a NACA office, participating in a peer lender committee or assisting other members with the homebuying process
Steps to getting a NACA mortgage
The NACA mortgage program seems generous at first — and it is — but there are many requirements that consumers must meet if they hope to get a home loan through this program. The main steps needed to proceed through the NACA mortgage process include:
Step 1: Attend a free workshop. Anyone considering a NACA mortgage must first attend a free educational homeownership workshop in their area. This workshop is provided at NACA offices several times a month and offers information on the costs of homeownership and how to become NACA-qualified. Check the NACA website to find a meeting in your area.
Step 2: Meet with a housing counselor. After the workshop, you’ll be assigned a counselor to answer questions. Your housing counselor will help you determine a reasonable budget based on your income, as well as come up with ways to reduce your expenses so that you can save more money each month. This step usually takes multiple appointments, and you must continue making new appointments with your housing counselor until you have received approval for the program.
Step 3: Maintain your financial situation and meet a minimum savings requirement. Once you are NACA-qualified, you will need to continue paying all your other bills on time, maintain your income and avoid taking on new debts. Until your NACA mortgage closes, you must also save a sum of money each month that is equal to the difference between your current housing payment and your future mortgage amount. Also note that NACA qualification only lasts for 90 days once you are approved.
Step 4: Attend a purchase workshop and search for a home. Once you are NACA-qualified, you must attend a purchase workshop at a NACA office. These workshops are held from 6 to 7:30 p.m. on Thursdays and help you search for properties within your price range. You can also connect with a NACA-approved real estate professional who can assist you in finding a home.
Step 5: Get a qualification letter. Once you find the home you want to buy, you must contact your housing counselor to get a property qualification letter that verifies you are qualified to purchase the home in which you’re interested. Your housing counselor and real estate agent will also help you draft an offer on the home based on market price and the need for repair or renovations.
Step 6: Get the home inspected. To qualify for a NACA mortgage, the home you want to buy must pass a thorough inspection by a NACA-approved home inspector. It will also need a pest inspection. If they show up, certain home conditions must be corrected before you can buy the home. This includes some code, safety, health and structural issues.
Step 7: Meet with a mortgage consultant and submit information. You’ll need to prove that you are still NACA-qualified — that you have maintained your income, met minimum savings requirements, paid all your bills on time and haven’t acquired new debts. You’ll also need to submit an executed purchase and sale contract, 30 days of pay stubs (or 12 months of bank statements if you’re self-employed), 90 days of bank statements for all your accounts and proof of on-time rental payments. This will also make it possible for your housing counselor to move forward with your mortgage application and submit it to a participating lender.
Step 8: Wait for your mortgage to process. While your mortgage is processing, you should take the time to search for homeowners insurance and complete your budget for any repairs or renovations.
Step 9: Close on the mortgage. While NACA mortgages don’t require any closing costs, you may need to bring a certified check for expenses such as prepaid taxes or prepaid insurance to closing. At your home closing, you will sit down with any co-borrowers, the home seller, the lender’s attorney or settlement agent, your attorney (if you have one), your real estate agent and the listing agent to sign all the mortgage documents that finish the deal.
Where can you find a NACA mortgage?
While NACA is working diligently to expand, it has offices and operating areas in the following states (as well as Washington, D.C.):
- New Jersey
- New York
- North Carolina
- South Carolina
NACA mortgage pros and cons
- No minimum credit score requirement. This can make buying a home considerably easier if your credit score precludes you from qualifying for conventional mortgages, or if poor credit would require you to pay exorbitantly high interest rates.
- No fees. These loans come with no origination fee, no application fees and no other hidden fees. These loans also come without closing costs.
- Low interest rates. NACA mortgages come with low fixed interest rates.
- No private mortgage insurance. Not having to pay PMI can also help you save considerable sums of money on your home loan.
- Financial counseling. NACA offers financial counseling throughout the process. This assistance can be immensely helpful if you’ve struggled to keep up with housing payments and other bills in the past.
- You must live in a NACA service area. You cannot buy a home with a NACA mortgage unless you live in a state and service area it covers.
- Limited purchase areas. If your household income exceeds the median income where you hope to buy a home, you can only purchase a home in a “priority” area as designated by NACA.
- Numerous meetings and hoops to jump through. NACA mortgages require many in-person meetings, from the initial homeownership workshop to meetings with a housing counselor. These meetings can take time out of your schedule and make the path to homeownership significantly longer.
- Purchase limits. Your home loan cannot exceed the conforming loan limits of $453,100 in most areas or $679,650 in high-cost housing areas.
Is a NACA mortgage right for you?
Before you decide to pursue a NACA mortgage, think through the entire process and all it entails. If you aren’t in a hurry to buy a home and believe you could benefit from homeownership workshops and financial counseling, a NACA mortgage could be ideal for your needs. But if you hate the idea of all those extra steps, there are other programs you can consider.
FHA home loans come with a minimum credit score requirement of 500 and a minimum down payment requirement as low as 3.5% if your credit score is at least 580.
Consumers interested in buying a home in a rural area can also consider the USDA loan program. USDA loans come with a minimum credit score requirement between 620 and 640 and have no down payment requirement.
The bottom line
NACA mortgages can be a boon for your finances if you don’t mind jumping through some hoops. But there are other home loan programs to consider if you have poor credit or a low to moderate income. If you want to become a homeowner but need help to make your dreams come true, make sure to study the available home loan programs and read through all the terms, conditions and fine print.