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Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
Updated January 21, 2020
NACA Mortgage Program Overview
The Neighborhood Assistance Corporation of America (NACA) is a non-profit, community advocacy and homeownership organization. NACA offers a home purchase mortgage program designed to make home ownership more attainable for more people, especially people with limited funds and challenging credit profiles.
In short, the NACA mortgage program enables eligible borrowers to purchase a home with no down payment, no closing costs or fees and no private mortgage insurance (PMI) using a fixed rate mortgage with an at or below market interest rate.
Although you are not required to pay standard mortgage closing costs such as lender, appraiser, title and settlement fees, you are required to prepay a year of property tax and homeowners insurance when your loan closes. Most applicants are also required to pay for a property inspection report, a one-time membership fee to join NACA as well as a credit report fee.
You also need to come up with the funds for an earnest money deposit to secure the property you want to buy, although this deposit is typically returned to you at closing. Finally, you are required to hold savings in reserve at closing, the amount of which varies depending on your monthly payment and property type, which we outline below.
Important NACA Mortgage Program Considerations
Ability to purchase a home with no down payment or standard closing costs
At or below market interest rate on mortgage
Flexible borrower qualification guidelines including character-based borrower credit evaluation
Extensive home buyer education and counseling
More in-depth and potentially time-intensive application process compared to other mortgage programs
The program is not available in all states although availability is expanding
You are required to pay for property tax, homeowners insurance and other expenses at closing
Ongoing volunteer requirement
NACA is not a lender and does not offer mortgages directly to borrowers. Instead, the NACA mortgage program is offered through participating lenders, primarily Bank of America and Citibank. We outline the key terms and requirements of the program below. You can learn more about the program, including how to apply, by visiting the NACA web site.
Key NACA Home Loan Program Terms
Home purchase or purchase and renovation / rehabilitation
Required Down Payment
Fixed rate mortgage
15 or 30 year
At or below current market rates
Interest Rate Buy-Down
Borrower has the option to buy-down the interest rate to 0% by increasing the mortgage amount, paying out of pocket or using gifts / grants
Standard Closing Costs
Prepaid Closing Cost Items
You are required to prepay homeowners insurance and property tax for a year at closing, which can cost thousands of dollars depending on your property value and other factors
Other Closing Fees
Property inspection report fee
NACA membership fee
Credit report fee (if applicable)
You are required to hold savings in reserve when your mortgage closes
The financial reserve requirement depends on how much your total monthly housing expense -- which includes your mortgage payment, property tax, homeowners insurance and any other applicable costs such as HOA or co-op dues -- increases as compared to your current housing cost and the property type
If your payment shock -- which is the increase in your monthly housing expenses -- is less than $300, you are required to hold reserves equal to one month of total monthly housing expense
If your payment shock is more than $300, you are required to hold reserves equal to two months of total monthly housing expense
If you are buying a multi-unit property (up to four units), the reserve requirement is four-to-six months
Private Mortgage Insurance (PMI)
NACA borrowers are not required to pay PMI
You can elect to pay discount points to lower your mortgage rate but this is not required and completely up to the applicant to decide
Minimum Credit Score
None / character-based borrower credit evaluation
Maximum Income Level
Must be located in an area where NACA is licensed. NACA has approximately 50 offices across the U.S. and is also licensed in several states in which it does not have an office.
There is no maximum property value (purchase price plus cost of any repairs) for borrowers whose gross income is less than 100% of the median income for the metropolitan statistical area (MSA) where the property is located or if the property is located in a "targeted area." A targeted area is a census track where the median income is less than 100% of the median income for the MSA in which the census track is located.
Please note that although there is no maximum property value for borrowers whose income is less than 100% of the median income for an MSA or if the property is located in a targeted area, all borrowers are bound by the conforming loan limit of $510,400 for a single unit property.
The borrower cannot own another property
The borrower must reside in the property being financed and purchased
Borrower Volunteer Requirement
Borrowers are required to volunteer at five housing advocacy events per year
Examples of volunteer activities include demonstrations, preparing mailers or other housing advocacy events
A mortgage program with below-market mortgage rates, no down payment requirement and no closing costs may sound too good to be true so it is important to highlight the programâs unique qualification requirements. Program participants must adhere to the NACA mortgage application and home purchase process which can be more time consuming and information-intensive than the standard mortgage process. The NACA process requires that borrowers provide a budget for the past three to six months, a debt payment and cash flow history and borrowers must show income stability. Borrowers must also provide full documentation of income, assets and debt including 90 days of bank statements (self-employed borrowers must provide twelve months of bank statements).
We recommend that you compare the loan terms and eligibility requirements for a NACA mortgage to the terms and guidelines for other no or low down payment programs. Contact lenders listed in the table below to determine the programs they offer and request loan proposals. Comparing multiple lenders and loan programs enables you to find the mortgage that is right for you.
Current FHA Mortgage Rates as of February 17, 2020
Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.
NACA Program Timeline
Because of its requirements, you may be concerned that the NACA application process puts borrowers at a disadvantage when buying a home. Home sellers typically prefer buyers that move fast and place fewer conditions and contingencies on an offer. NACA has implemented several steps to address these concerns and make sure that the application process does hinder your ability to buy a home.
According to NACA, once a home purchase agreement has been submitted, most closings take place within 28 days. This helps to mitigate potential concerns from home sellers that it takes longer for NACA members to complete the mortgage and purchase process. In addition, the organization offers âAchieve the Dreamâ events which combine the first four steps of the NACA process (workshop, document submission, counseling and underwriting review) into a single event where applicants can be approved for the program in as little as one day.
Key NACA Qualification Requirements
The NACA Program is well-suited for borrowers with low credit scores or limited credit histories. Instead of solely relying on your credit report and score, NACA applies a rigorous character-based approach to determine a borrowerâs credit-worthiness. For example, a borrower is not penalized if he or she experienced financial hardship due to high medical expenses caused by an illness.
Borrowers must demonstrate the ability to afford their total monthly housing expense which includes your mortgage payment plus property tax, homeowners insurance and homeowner association fees, if applicable. NACA compares borrowers' monthly income and debt (including credit card, student and auto loans and alimony payments) to their total monthly housing expense to determined their ability to qualify for a mortgage and participate in the program. Borrowersâ financial situations including their monthly income, debt and savings cannot fluctuate significantly during the application process and after their mortgage closes. Borrowers may also be required to provide cancelled rent checks during the application process.
We summarize the NACA mortgage application and home buying process below and you can find more detailed information on the NACA web site.
NACA Mortgage Application and Home Buying Process Steps
1) Attend a Home Buyer Workshop
All applicants must attend a free educational home buyer workshop
2) Attend a Housing Counseling Class
Meet with a housing counselor one or multiple times to determine your ability to qualify for a NACA mortgage
3) Review Mortgage Options and NACA Program
Review the mortgage programs available through the NACA program
4) Housing Search
Attend a NACA Purchase Workshop that review the home purchase process
Work with a real estate agent to find a home you can afford
5) Purchase and Sale Contract
Negotiate and execute the purchase and sale contract for the property you want to buy
Your NACA counselor must review the contract including your mortgage amount
6) Property Condition
The property you want to buy must be inspected by a NACA-approved home and/or pest inspector
Significant property issues such as structural damage may need to be fixed before the mortgage closes
7) NACA Credit Access and Lender Application
Receive NACA credit access from your NACA mortgage consultant and submit your mortgage application to a participating lender
8) Mortgage Processing and Underwriting
NACA works with your lender to ensure that the mortgage application review and underwriting process goes smoothly
9) Mortgage Closing
Sign all the necessary documents to close your mortgage and take ownership of the property
Do not sign mortgage documents unless you are completely satisfied with the terms of your mortgage
10) Post-Purchase Program
NACA provides a post-purchase program to assist borrowers with any mortgage challenges they encounter after their mortgage closes
Use the FREEandCLEAR Lender Directory to search for twenty-five mortgage programs including many no or low down payment options
Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. Harry is a licensed mortgage professional (NMLS #236752). More about Harry