NACA Mortgage: What It Is and How It Works
If you want to buy a home, but you have bad credit or limited assets, the Neighborhood Assistance Corporation of America (NACA) may be able to help. NACA is a nonprofit and HUD-certified homeownership and advocacy organization that is committed to assisting economically disadvantaged individuals with becoming homeowners by offering loans at below-market interest rates with no down payment or closing costs.
How the NACA purchase program works
NACA’s purchase program, which provides homebuyer education and helps to connect the buyer with an affordable mortgage, is by far the organization’s most popular service. As a NACA first-time homebuyer, consumers have the ability buy a home with:
- No down payment
- No points or fees
- No closing costs
- A below-market interest rate
- No credit score requirement
In particular, mortgage rates for a NACA loan are extremely competitive. As of July 14, 2020, the interest rates offered on NACA purchase loans were 3% for 30-year, fixed-rate loans and 2.375% for 15-year, fixed-rate loans, according to naca.com.
However, it’s important to note that the NACA housing program does not actually provide the funds for the loan. For that, the NACA home program will help connect you with a participating lender. However, these mortgages come with a post-purchase assistance program known as the Membership Assistance Program (MAP), which is offered in place of private mortgage insurance and guarantees your loan in case you default. The guarantee from the NACA mortgage program allows the lender to offer affordable rates.
Beyond access to an affordable mortgage, NACA’s MAP program provides homeowners with budgeting and financial advice that can help them improve their finances and remain in their homes. Borrowers may also have access to financial assistance and temporary forbearance, which can make it easier for people to stay in their homes during a financial hardship.
Who qualifies for a NACA mortgage
Unlike other first-time homebuyer programs, 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 or for people who want to invest in those communities.
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.”
Besides income levels, while traditional mortgage approval relies on consumer credit scores, debt-to-income ratios and income, NACA mortgage applicants are evaluated based on their on-time payment history and other factors besides their credit scores. You can have poor credit and qualify, provided you meet all other requirements for the mortgage program.
Here’s a list of other NACA program requirements:
- You cannot own another home at the time of closing on a NACA mortgage, nor can anyone in your household.
- You must live in the home while you have a NACA mortgage.
- You pay an annual membership fee of $25 to become a member of the NACA.
- You 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.
- You cannot buy a home that exceeds local loan limits for conventional mortgages. As of 2020, the limits are set at $510,400 for single-family homes in most areas and $765,600 in high-cost areas.
Steps to getting a NACA mortgage
The NACA mortgage program has many benefits, but to get one, you have to navigate the application process. The main steps needed to get a NACA program mortgage include:
Step 1: Attend a free homeownership workshop
Anyone considering a NACA mortgage must first attend a free educational homeownership workshop in their area. This workshop will be held at a local NACA office several times a month. It 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 schedule an appointment with a housing counselor. During the appointment, your housing counselor will help you determine a reasonable budget based on your income. You’ll also be given an action plan that includes specific steps you need to complete in order to be financially ready to complete the NACA homebuying program.
Completing an action plan and becoming NACA-qualified may take several months. You must continue making new appointments with your housing counselor to report on your progress until you’ve been certified.
Step 3: Maintain your finances and meet a minimum savings requirement
Once you are NACA-certified, you must:
- Pay all your other bills on time
- Maintain your income
- Avoid taking on new debt
- Save a sum of money each month that is equal to the difference between your current housing payment and your future mortgage amount
Note: NACA qualification only lasts for 90 days once you’re 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 p.m. 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 and submit the purchase contract
When you find the home you want to buy, you must contact your housing counselor to get a property qualification letter. 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 any repairs or renovations.
Step 6: Get the home inspected
To qualify for a NACA mortgage, schedule a home inspection with a NACA-approved home inspector. It will also need a pest inspection. If certain condition issues show up, they must be corrected before you can buy the home. This includes some code, safety, health and structural problems.
Step 7: Meet with a mortgage consultant and submit your loan information
In order to officially apply for a NACA mortgage, you’ll first need to prove that you are still NACA-qualified – that you’ve maintained your income, met minimum savings requirements, paid all your bills on time and haven’t acquired new debt.
You’ll also need to submit the following documentation to your mortgage consultant, so it can be provided to your lender:
- 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 of your accounts
- Proof of on-time rental payments
Step 8: Wait for your mortgage to close
While your mortgage is processing, search for homeowners insurance and complete your budget for any repairs or renovations.
Step 9: Close on the mortgage
NACA mortgages don’t require any closing costs, but you may need to bring a certified check for expenses such as prepaid taxes or prepaid homeowners insurance premiums to closing.
At your closing, you (and any co-borrowers on the loan) will meet with the home seller, the seller’s attorney and/or agent, your attorney (if you have one), your real estate agent and lender’s attorney or settlement agent to sign the mortgage documents that finalize the deal.
Step 10: Use the Membership Assistance Program (MAP)
Once you have closed on a NACA mortgage, as a NACA member, you have access to post-purchase assistance through their Membership Assistance Program (MAP). In the eyes of the lender, the MAP program takes the place of traditional mortgage insurance. However, it also offers a whole host of homeowner benefits, including:
- Budgeting and other homeownership counseling.
- Loan modification in the event of changed financial circumstances.
- Temporary forbearance options.
- Financial assistance for approved homeowners.
- Real estate services to help sell your home.
- Communication with your lender.
- Additional services as they become available through NACA.
NACA mortgage pros and cons
|No minimum credit score requirement. This can make buying a home considerably easier if you have poor credit that would disqualify you from a conventional loan or require you to pay high interest rates.||You must live in a NACA service area. You cannot buy a home unless you live in a state and service area that NACA covers.|
|No fees. These loans come with no origination fee, no application fees and no other hidden fees. These loans also come without closing costs.||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 NACA “priority” area.|
|Low interest rates. Your NACA mortgage will come with a below-market interest rate.||Plenty of red tape. NACA mortgages require many in-person meetings, which can take time out of your schedule and make the path to homeownership significantly longer.|
|No private mortgage insurance (PMI). All you have to pay is NACA’s $25 annual membership fee, which is considerably cheaper than the average PMI payment.||Purchase limits. Your home loan cannot exceed the conforming loan limits of $510,400 in most areas and $765,600 in high-cost areas.|
|Financial counseling. NACA offers financial counseling throughout the process. This assistance can be helpful to manage your bills and housing payments.||Ongoing commitment. NACA members are required to pledge to attend at least five NACA events per year.|
Is a NACA mortgage right for you?
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 jumping through so many hoops, there are other programs to keep in mind:
- Federal Housing Administration (FHA) loans. FHA 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.
- U.S. Department of Agriculture (USDA) home loans. 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 of 640 and have no down payment requirement.
FAQs on NACA mortgages
NACA maintains an extensive list of frequently asked questions on its website, but here are some of the most common questions asked by homebuyers.
What is NACA?
The Neighborhood Assistance Corporation of America (NACA) is a nonprofit and HUD-certified organization dedicated to helping economically-disadvantaged individuals become homeowners. They do this through offering homeownership and financial counseling, access to affordable mortgages and a host of other additional services.
In what states does NACA operate?
NACA has offices and operating areas in the following states (as well as the District of Columbia):
- New Jersey
- New York
- North Carolina
- South Carolina
Do I need to live in a state with a NACA office to get a NACA mortgage?
No, anyone who successfully completes the steps to become NACA-qualified can get a NACA mortgage. While homebuyers are encouraged to go to NACA events in the community where they intend to purchase, you may attend a homebuyer workshop in any state. If there isn’t a NACA location close enough to you, NACA offers an option for remote counseling as well.
How much does a NACA membership cost?
As of 2020, maintaining an active membership to NACA costs $25 per year.
What upfront funds are needed for a NACA mortgage?
While NACA mortgages have no closing costs, you should be prepared to make an earnest money deposit and down payment. You also need to be able to cover the cost of a home inspection and escrow prepayment for property insurance and taxes. Finally, you also need to have a sufficient amount of cash reserves in the bank.
Does NACA put a lien on the property?
Yes. NACA puts a soft-second lien on the property in order to ensure that the member lives in the property for as long as they have the NACA mortgage. It also helps ensure that NACA will be repaid for any assistance they provide on mortgage payments.