NACA Loan: The Real Deal Or Too Good To Be True?

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A NACA loan is a unique home purchase program that helps moderate and low-income homebuyers get below-market mortgage rates to buy a home. It’s a great program, but there are some hoops you have to jump through to get approved and remain in good standing.

A Great Way To Buy a Home

A colleague of mine got a NACA loan years ago to purchase a quadplex in a coastal community. He was a single bachelor at the time and planned to live in one unit and rent out the other three units.

It was a great plan because the building was in a high-demand market and the rental income would easily cover his mortgage payment, taxes and insurance. The only downside for him, in my opinion, was that the building was somewhat old, so it would likely require a lot of maintenance in the future.

I remember being amazed by the NACA mortgage product terms: 0% down, 30-year fixed, a below-market interest rate, no closing costs, and no mortgage insurance. Wow!

I’ve done thousands of home loans in my career, so I can say with some authority that NACA mortgages are a heck of a deal. The application process isn’t the easiest, but the loan terms are phenomenal.

NACA Overview

NACA, which stands for Neighborhood Assistance Corporation of America, is a non-profit organization dedicated to helping low- and middle-income families achieve affordable homeownership.

NACA’s Home Purchase Program is designed to eliminate many of the hurdles that prevent families from buying a home. Here are some of the basic features of the program:

  • No down payment – Saving for a down payment is the biggest barrier to homeownership for many families. NACA loans do not require down payments.
  • No closing costs – NACA pays for your closing costs, which saves you thousands of dollars at closing. However, you will need to have at least some cash on hand for the earnest money deposit (which is returned at closing), home inspections, and prepayments for property taxes and homeowner’s insurance.  
  • No mortgage insurance – NACA loans have no mortgage insurance. This is a big advantage versus an FHA loan or low-down payment conventional loan.
  • Low interest rates – NACA mortgage interest rates are typically well below conventional, FHA, USDA, and VA mortgage rates.
  • Flexible credit requirements – Credit scores aren’t as important as they are for a conventional, FHA, USDA, or VA mortgage. NACA is mostly concerned with your housing payment history for the last twelve months.

NACA isn’t a mortgage lender, so you won’t be getting the loan from NACA. The role of NACA is to prepare you for homeownership, help you find a home, and help you secure financing through their lending partner Bank of America.

NACA works with you every step of the process and even provides post-closing support and counseling if you need it.

Current Mortgage Purchase Rates

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NACA Loan Requirements

NACA’s lending guidelines are much more flexible than most traditional mortgage products, but there are some basic requirements you’ll need to meet:

  • Credit scores – There are no minimum credit scores. NACA is more concerned with credit history than credit scores.
  • Payment history – NACA looks at the last 24 months of housing payments (whether rent or mortgage payments), with a focus on the last 12 months. It’s important that you have made your housing payments on time for the last 12 months.
  • Maximum debt-to-income ratios (DTI) – The maximum DTI for most housing markets is 33% for just the house payment (including taxes and insurance) and 40% for the house payment and all other debt payments. These ratios are designed to ensure that you’re taking on an affordable mortgage payment. The maximum debt ratios may be slightly higher in high-cost real estate markets.
  • Employment – You must be employed with an income adequate to meet the above maximum debt-to-income ratios. You may still qualify even if you’re an independent contractor and have gaps in your employment.
  • Required documentation – If you’re a W2 wage earner, you’ll likely need to provide paystubs covering the last 30 days, tax returns covering the last two years, W2s covering the last two years, and bank statements covering the last 3 months. If you’re self-employed, you’ll likely need to provide tax returns covering the last two years and bank statements covering the last 12 months.
  • Chapter 13 bankruptcy – There is no waiting period to apply for a NACA loan as long as the Chapter 13 is discharged.
  • Chapter 7 bankruptcy – You must wait for two years after the Chapter 7 discharge date before applying for a NACA loan. You’ll also need to demonstrate that you have reestablished your credit by paying your bills on time.
  • Property ownership – No member of your family can own any other home at closing. You do not need to be a first-time homebuyer to qualify, you just can’t own any other homes when you close on the NACA loan.
  • Other derogatory credit – Liens, judgments, and student loans in default must be resolved and/or brought current before applying for a NACA loan.
  • Occupancy – You must live in the home for as long as you have the NACA mortgage. It’s OK if you purchase a second home or rental in the future, but the home with the NACA loan must remain your primary residence.
  • Maximum purchase price – The purchase price plus any repair funds held in escrow cannot exceed the NACA loan limits, which are calculated by NACA and vary from year to year. Check with your NACA counselor for the maximum mortgage amount in your area.
  • Multiple uses of the program – NACA allows you to use their program a maximum of two times with at least five years between purchases.
  • Eligible property types – Eligible property types include single-family homes, condos, co-ops, duplexes, triplexes, quadplexes, and manufactured homes on a permanent foundation. Some mixed-use properties are also eligible as long as at least 50% of the home is used for residential purposes.

Note that this is a summary of the basic requirements only. Other qualifying requirements could apply.

Priority Vs Non-Priority Members

NACA’s primary mission is to help low-to-moderate income families purchase homes. To help fulfill that mission, it classifies applicants into two categories:

  • Priority Members – A Priority Member is a home buyer whose income is less than the median area income. Priority Members can purchase a home anywhere and they receive the lowest rates offered through the NACA program.
  • Non-Priority Members – A Non-Priority Member is a home buyer with income equal to or greater than the median area income. Non-Priority Members must purchase a home in a US Census Tract where the median income is less than 100% of the median income for the metropolitan statistical area (MSA). For example, if you want to purchase a home in the Fresno, California area, you must find a neighborhood in a census tract where the median income is less than the median income for the Fresno-Madera-Hanford MSA. In other words, NACA requires Non-Priority Members to buy in neighborhoods where incomes are lower than the overall area.

This can be confusing, so here’s a summary: if your income is less than the median area income, you can buy wherever you like with a NACA loan. If your income is higher than the median area income, you can only buy in neighborhoods where incomes are lower than average.

In other words, NACA doesn’t want buyers with above average incomes using their program to purchase homes in wealthier areas.

Payment Shock

NACA’s “payment shock” savings requirement ensures that homebuyers can handle the transition from renting to owning. If your future mortgage payment will be higher than your current rent payment, NACA requires you to save the difference for several months leading up to the purchase of your home.

For example, if your new mortgage payment will be $2,000/month and your current rent payment is $1,500/month, NACA wants you to save the difference (which is $500) for several months before you buy your home.

This helps you build up your cash reserves and it helps you get accustomed to the new higher mortgage payment.

NACA Community Advocacy Requirements

An unusual ongoing requirement of the NACA program is community advocacy. As a NACA member, you’ll be required to participate in five community advocacy actions annually, ranging from supporting local housing initiatives to broader economic justice campaigns.

NACA’s advocacy seems to run left of the political center, so this may not sit well with all applicants. It’s something to be aware of before you apply for the NACA program.

Steps to Getting a NACA Mortgage

The NACA mortgage process involves several steps designed to ensure every borrower is NACA qualified and prepared for homeownership:

  1. NACA Workshop – Attend a NACA Homebuyer Workshop to learn about the NACA mortgage and get your NACA ID.
  2. Application – Submit your NACA program application and schedule an appointment with a housing counselor.
  3. NACA Qualification & Property Workshop – Meet with a housing counselor to assess your financial situation, create a budget, and develop an action plan to become NACA qualified. Attend the NACA Property workshop to learn about property types, the home purchasing process, and potential repair issues. Once you’ve completed your action plan, you’ll need to meet with your housing counselor again to confirm you have completed the steps to become NACA qualified.
  4. Purchase Workshop – Attend a Purchase Workshop where you’ll learn about the home purchase process, preparing for your housing search, identifying potential properties, submitting your mortgage application, etc.
  5. Housing Search – Search for a home that meets NACA’s location, property type, and property condition requirements. Once you’ve found a home, you’ll need to confirm with NACA that you’re qualified to buy the home before you submit an offer.
  6. Purchase & Sales Agreement – Once your offer is accepted, your real estate agent can help you put together the purchase agreement. Be sure to contact NACA before you sign the purchase agreement to make sure it conforms with NACA requirements and recommendations.
  7. Inspections – Hire a licensed home inspector to determine if/what repairs are needed.
  8. Submit Your Mortgage Application – Submit all requested documents to NACA, meet with your counselor to get your NACA Credit Access approval, then submit your application to the lender.
  9. Mortgage Processing & Closing – Once your mortgage file is complete, the lender will schedule closing. You’ll meet with a settlement agent to sign the final paperwork and process the transfer of funds from your lender to the seller.

Yes, there is a lot more to the NACA mortgage program than going with a regular home loan. The workshops, counseling sessions, and preparatory work are intentionally designed to help set you up for success as a new homeowner. I think this is a big reason that NACA has a very low foreclosure rate.

Pros and Cons of the NACA Program

I’ve done a lot home loans in my career, so I think I can say with authority that a NACA mortgage comes with some pretty phenomenal loan terms.

NACA is a great program with a lot of upsides, but it has some downsides as well. We’ll cover both so you can make an informed decision about whether a NACA mortgage is right for you.

NACA Upsides

  • Zero down payment – The only other zero-down mortgage products available are VA mortgages and USDA mortgages, but both come with more stringent credit qualifying requirements, and often have stiff funding fees.
  • Zero closing costs – The NACA loan is unique in that it has no closing costs. No other mortgage product offers this unless you accept an above-market interest rate.
  • Below market interest rates – A NACA loan offers interest rates that are lower than your typical FHA, conventional, VA, and USDA home loans.
  • No mortgage insurance – Zero-down VA loans also come with no mortgage insurance, but there are more stringent credit qualifying requirements and a potentially stiff funding fee.
  • Flexible lending requirements – FHA, conventional, VA, and USDA home loans all come with strict credit score requirements that impact the interest rate and closing costs you pay. A NACA loan has no minimum credit score. You don’t need perfect credit to qualify.
  • Upfront counseling – The upfront counseling can be cumbersome, but it also helps ensure that home buyers are set up for success.
  • Ongoing support – NACA offers post-closing support through it’s member assistance program. The membership assistance program is designed to help you adjust to the financial responsibilities of owning a home. Members also have access to financial assistance if they need it.

In short, only the NACA loan offers zero down, no mortgage insurance, zero closing costs, below-market interest rates, and amazingly flexible lending requirements. It’s pretty easy to see why it’s been dubbed “America’s Best Mortgage”.

Again, I’ve done thousands of home loans over my career, and there’s no other mortgage product that offers this combination of benefits. A NACA loan is a phenomenal mortgage product.

NACA Downsides

A NACA loan offers a lot of great benefits, but there are some downsides as well:

  • Long application process – The extensive application process can be cumbersome. There are a lot of counseling sessions and workshops to attend and protocols to follow.
  • No equity – Unless home values appreciate rapidly, you’ll likely have very little equity in your home for a long time to come if you purchase with zero down. If home values fall, you may end up owing more than your home is worth. I recommend planning to live in your home for at least ten years if you purchase with a zero down mortgage like a NACA loan.
  • Geographic limitations – If your income is above the median area income, you’ll be limited to purchasing in neighborhoods with below average incomes.
  • Political advocacy – The ongoing advocacy requirements can be burdensome. They may also be off-putting for buyers with more centrist or conservative political views. NACA is a great organization that offers huge benefits to its members, but it’s pretty open about it’s left-of-center political views.

Though the application process can be cumbersome, it’s important to realize that it’s intended to help you succeed as a homeowner. And you can’t argue with success: NACA boasts a .00012% foreclosure rate as of publication. Wow!

Alternatives to the NACA Program

Not sure if a NACA loan is right for you? NACA offers an impressive range of benefits, but it’s not the only path to homeownership. Here are some other options:

  • FHA mortgageFHA loans require a minimum down payment of 3.5% of the purchase price. FHA loans come with mortgage insurance, but the more flexible credit requirements and competitive rates make them a viable alternative to a NACA loan.
  • USDA mortgage – Like a NACA loan, you can get a USDA home purchase loan with zero down. However, USDA loans are restricted to homes in designated rural areas, which could limit your home search even more than NACA’s geographic constraints. USDA loans also require mortgage insurance, which is included in your monthly payment.
  • VA loan – If you’re active duty or a veteran, a VA loan is probably the best alternative to a NACA loan. The interest rates are highly competitive and you can purchase with zero down and no mortgage insurance. The funding fee can be expensive, but you may be able to avoid it if you receive VA disability income. The credit and income requirements are also more flexible than other types of mortgage financing.

Frequently Asked Questions

What credit score is needed for NACA?

There is no minimum credit score to qualify for a NACA loan. You can find out more about NACA’s qualification requirements on this page.

What is the downside of NACA?

The application process can be long and cumbersome, but it’s designed to set you up for success. NACA also requires ongoing political advocacy, which can be tedious and cumbersome for some homebuyers.

Is NACA better than FHA?

Yes, it can be! The application process for a NACA mortgage is longer and more involved, but you can purchase a home with zero down and no mortgage insurance with a NACA loan. An FHA mortgage requires at least 3.5% down and comes with mortgage insurance.

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About Mike Roberts

Mike Roberts is the founder of MyHECM.com, a published author, and a highly experienced mortgage industry veteran with over a decade of mortgage banking experience. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.