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NACA Program: What It Is and How It Works

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The NACA program is a unique home-purchase initiative created by the Neighborhood Assistance Corporation of America (NACA). The nonprofit organization provides low- and moderate-income borrowers homeownership education and opportunities.

With a NACA mortgage, buyers typically challenged by traditional financing can access affordable loans with favorable terms.

What is the NACA homebuying program?

The NACA purchase program connects low- and moderate-income borrowers to affordable home loans and housing education. To qualify for a mortgage through the NACA program, borrowers must meet specific eligibility requirements, follow a detailed application process and become NACA members.

NACA home loans feature the following benefits:

No down payment requirement

No fees

No closing costs

Below-market interest rates

15-year or 30-year fixed-rate terms

No private mortgage insurance (PMI)

No credit score minimum

Because the primary goal of the NACA program is to offer access to budget-friendly homeownership, NACA interest rates are below market. As of April 5, 2022, NACA interest rates are 3.75% for a 30-year fixed-rate mortgage and 3.125% for a 15-year fixed-rate loan.

Higher-income applicants (those whose income is at or above the median income where they are purchasing) pay slightly higher rates: 4.75% for a 30-year loan and 4.125% for a 15-year mortgage. NACA program buyers can also buy down their interest rate.

How does NACA work?

NACA is a Department of Housing and Urban Development (HUD)-certified nonprofit organization whose mission is to offer affordable homeownership to low and moderate-income communities and borrowers — often victims of predatory lending or shut out of home financing altogether. NACA is not a mortgage lender but rather prepares its members for homeownership through its extensive counseling and application process and partners with banks that provide the funding.

Borrowers who purchase a home through the NACA program become members of the organization and follow membership requirements, including paying annual dues of $25 and participating in advocacy and other events.

NACA program requirements: How to qualify

Borrowers must meet the following NACA program requirements.

Income limits

The NACA program doesn’t have specific income restrictions; however, because it aims to reach low-and moderate-income homebuyers and communities, it distinguishes between priority and non-priority members.

  • Priority members: Borrowers whose household income is less than the median family income where they are purchasing or borrowers of any income who are buying a home in a “targeted area.” Priority members receive the lowest NACA interest rates.
  • Non-priority members: Borrowers whose household income is equal to or more than the median family income where they are purchasing a home and are not buying a home in a “targeted area.” Non-priority members receive slightly higher interest rates.

Credit score

Unlike many loan programs, the NACA homebuying program does not have a minimum credit score. Instead, NACA evaluates an applicant’s credit and income information and works with them to determine an affordable payment.

Debt-to-income ratio

The NACA program uses debt-to-income (DTI) ratios to ensure borrowers have affordable mortgage payments in proportion to their income. The program uses two DTI ratios:

  • Housing Ratio: Borrowers’ mortgage payments may not exceed 33% of their gross income.
  • Debt Ratio: Borrowers’ total debt payments (including the mortgage) may not exceed 40% of their gross income.

In some high-priced areas, the NACA program allows up to a 35% housing ratio and 43% debt ratio.

Loan limits

NACA home price limits do not exceed conforming loan limits — maximum mortgage amounts established by the Federal Housing Finance Agency (FHFA). In some cases, NACA purchase price limits may be lower than the current conforming loan limits.

For 2022, the NACA program’s maximum purchase price for a single-family home, including repair escrow funds (if applicable), is $484,350 in most areas and $726,525 in high-cost areas. NACA allows higher loan amounts for multifamily properties.

Eligible properties

The following property types are eligible for a NACA mortgage:

Single-family

Multifamily

Condos

Co-ops

Mixed-use

Manufactured and modular homes (property must be on a solid foundation)

The following properties are not eligible:

Log homes

Empty land

Operating farms and ranches

Mobile homes

Not own other homes at the time of purchase

NACA program members and anyone in the household can’t own any other property at the time of purchase.

Occupancy requirement

Borrowers must live in the property as long as they have a NACA mortgage.

NACA membership and participation

As a part of NACA requirements, borrowers must become NACA members and follow membership guidelines. This includes paying an annual $25 fee and attending five NACA housing advocacy events per year, including one before qualifying for NACA and one before closing on the home.

The yearly dues go towards an assistance fund available to all members who may need help paying their mortgages after closing. Borrowers must maintain NACA membership as long as they have a NACA mortgage.

Steps to get a NACA home mortgage

Applicants interested in applying to the NACA housing program must follow the program’s application process.

1. Attend a NACA homebuyer workshop

To begin, borrowers take a 4-hour NACA homebuying workshop that explains NACA loan requirements, program benefits and the homebuying process. The workshop is free and open to anyone interested in the NACA program.

2. Meet with a housing counselor

After attending the NACA workshop, applicants meet with a housing counselor. To prepare for the appointment, borrowers upload information and the requested documents to their online account.

During the meeting, the counselor will review your income and expenses, and you’ll work together to determine an affordable monthly housing payment and overall budget. You may also receive an action plan for your next steps. Borrowers may need to meet with their counselor multiple times.

3. Become NACA-qualified

NACA program applicants must be NACA-qualified to move forward in the application process. Similar to a preapproval, becoming NACA-qualified means you meet the preliminary criteria for the program and are likely to be approved for a NACA mortgage.

Your counselor will request documents including but not limited to:

30 days of pay stubs (or 12 months of bank statements if self-employed)

Two years of tax returns

Two years of W-2s

90 days of bank statements for all accounts

Proof of on-time rental payments

Depending on your situation, becoming NACA-qualified can take anywhere from one counseling session to several months. Once approved, the qualification is valid for six months.

4. Attend a NACA purchase workshop and search for a home

After becoming qualified, you’ll attend a NACA purchase workshop. This workshop is one and a half hours and explains the process of searching for a home, addressing repair issues and the remaining steps leading up to closing. Upon completing the Purchase Workshop, you’ll receive the NACA qualification form, choose a real estate agent and officially begin home shopping. Borrowers can use in-house real estate agents or any agent of their choice.

5. Get a property qualification letter

Once you’ve found a property, you’ll contact your housing counselor to receive a property qualification letter, which verifies you are qualified to purchase the home. You’ll then negotiate the home price and other terms of the purchase and sale agreement.

6. Get a home inspection

Once the purchase and sale agreement is finalized, you’ll get the home inspected by a NACA-approved home and pest inspector. The inspection process ensures the home is safe and meets NACA requirements. In some cases, NACA’s Home and Neighborhood Development (HAND) department will work with you to address necessary repairs.

7. Meet with your mortgage consultant and submit documents

Next, you’ll meet with a mortgage consultant who will verify you’re still NACA-qualified and approve you for NACA credit access. This step allows your housing counselor to submit your complete NACA mortgage application to a participating lender for final approval.

You will need to provide the following during this step:

An executed purchase and sale contract

30 days of pay stubs (or 12 months of bank statements if self-employed)

90 days of bank statements for all accounts

Proof of on-time rental payments

8. Close on your home

After your loan goes through underwriting, the next step is to close on the home. The closing process finalizes the purchase and makes you the legal owner of the property. With a NACA mortgage, the lender covers the closing costs, but you’ll need to have the funds for prepaid items, such as real estate taxes and homeowners insurance premiums.

Before closing, you’ll do a final walkthrough of the property to ensure the condition is as agreed. At the closing, you (and any co-borrowers) will meet with the home seller, the seller’s attorney or agent, your attorney, your real estate agent and the lender’s attorney or settlement agent to sign the mortgage documents and finalize the deal. Once the closing is complete, you’ll be the new owner of the property and will receive the keys.

9. Use the Membership Assistance Program (MAP)

After closing, members have access to assistance and benefits as part of the organization’s post-purchase program. MAP benefits include:

  • Budgeting and other homeownership counseling
  • Loan modification to address changed financial circumstances
  • Temporary forbearance options
  • Financial assistance for approved homeowners
  • Real estate services when selling your home
  • Help with addressing issues with your lender
  • Additional homeowner and neighborhood services and advocacy

Pros and cons of NACA

While NACA home loans provide prospective homeowners with many advantages compared to other forms of financing, borrowers should consider all aspects of the NACA program.

ProsCons

  No minimum credit score. NACA credit requirements make homeownership possible and affordable for borrowers with poor or limited credit. With traditional financing, borrowers with low credit scores are often denied loans or pay high interest rates.

  No fees. The NACA program has no origination fee, application fee, underwriting fee, mortgage insurance or other hidden fees. (Borrowers pay annual dues as NACA members and may also elect to buy down their interest rate.)

  Low interest rates. NACA interest rates are below-market.

  No closing costs. Lenders pay for the appraisal, title insurance, closing attorney and other closing costs. 

  No down payment. With no down payment requirement, the NACA program eliminates a common barrier to homeownership.

  Only available in NACA service areas. To qualify for a NACA home loan, borrowers must purchase a home in a NACA coverage area.

  Higher rates for some borrowers. Borrowers whose income is above the median income where they are purchasing pay a higher interest rate unless they buy a home in a “targeted area.”

  A detailed application process. NACA program applicants must follow a multi-step process that includes attending NACA workshops and meeting with a counselor. While these steps educate the buyer and ensure their readiness for homeownership, they can make the loan process more complicated and longer compared to other loan options.

  Purchase limits. NACA home price limits are lower than current conforming loan limits — $484,350 for a single-family home in most areas compared to $647,200 for other conventional loans.

  Ongoing commitment. NACA program borrowers must attend at least five NACA events per year.

Alternatives to the NACA program

In addition to NACA loans, borrowers looking for mortgages with flexible qualifications and terms have many options. The following programs provide low- or no- down payment minimums or home purchase assistance.

FHA loans

Loans insured by the Federal Housing Administration (FHA) are similar to NACA mortgages regarding having flexible credit requirements, but they carry fees and have a down payment requirement. Borrowers can qualify for FHA loans with scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment. FHA loan borrowers must pay an upfront mortgage insurance premium and ongoing mortgage insurance.

USDA loans

Like NACA loans, mortgages guaranteed by the U.S. Department of Agriculture (USDA) have no down payment requirement. However, borrowers must meet income restrictions and purchase a home in a designated rural area to qualify. While USDA loans don’t have a minimum down payment requirement, many lenders look for a score of 640 or higher.

VA loans

Loans insured by the U.S. Department of Veterans Affairs (VA) have no down payment requirement, income limits or geographic requirements — similar to the NACA program. To qualify, buyers must be active-duty service members, veterans or eligible spouses. Like NACA mortgages, VA loans don’t have a minimum credit score, but many lenders require a score of 620. VA borrowers pay an upfront funding fee and may have additional lender fees.

First-time homebuyer programs

Many state governments and housing authorities offer first-time homebuyer programs on the state or regional levels. Assistance varies by program but can typically include low-rate mortgages or down payment assistance.

In some cases, borrowers can combine multiple programs to maximize their buying power and lower the cost of homeownership considerably. First-time homebuyer programs are typically available to buyers who haven’t owned their primary residence in the past three years.

Down payment assistance programs

In addition to first-time homebuyer programs, state governments and local organizations offer down payment assistance. Borrowers may need to pair the aid with a first loan from the same program but, in some instances, may receive the help as a stand-alone program. Depending on the program, down payment assistance can come as a grant, no-payment forgivable loan or traditional second mortgage.

Frequently asked questions

The NACA program website maintains an extensive frequently asked questions section; here are some of the most common questions about NACA mortgages.

What is NACA?

The Neighborhood Assistance Corporation of America (NACA) is a HUD-certified nonprofit organization dedicated to providing affordable homeownership in the country’s urban and rural areas. The NACA home program offers financing opportunities to borrowers typically targeted by predatory lending practices or left out of home financing altogether due to traditional lending criteria.

Do you have to be a first-time homebuyer with NACA?

No, the NACA program doesn’t require borrowers to be first-time homebuyers. However, borrowers and household members cannot own any other property when they close on a NACA mortgage.

Does NACA have income limits?

There are no NACA income limits, but the NACA program prioritizes borrowers whose household income falls below the area median income where they are purchasing or those purchasing in low- and moderate-income communities.

Does NACA have credit score requirements?

NACA credit requirements don’t include a minimum credit score as a basis for eligibility. Counselors review applicants’ credit history and debt to determine their eligibility. In some cases, borrowers may need to address issues or wait to qualify.

Do I need to live in a state with a NACA office to get a NACA mortgage?

NACA loan recipients don’t have to live in a state with a NACA office, but they do need to purchase a home in a NACA coverage area. NACA mortgages are available in a wide range of service areas; borrowers who do not live close to an office can attend NACA workshops and counseling virtually.

What upfront funds are needed for a NACA mortgage?

The NACA program does not require a down payment, and borrowers won’t pay closing costs. However, borrowers should prepare to make an earnest deposit when making a purchase offer and have enough money to fund their escrow account for real estate taxes and homeowners insurance at the closing. Additionally, NACA program requirements state that applicants must have cash reserves during the application process and at the time of closing.

Does NACA put a lien on the property?

Yes, NACA places a $25,000 soft-second lien on the home to ensure borrowers meet the program requirement of remaining in the property while they have a NACA mortgage. The lien also helps guarantee that borrowers repay NACA any payment assistance they receive after closing.

 

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