The Neighborhood Assistance Corporation of America, or NACA, helps low-and-moderate income homebuyers secure financing to purchase and renovate homes. Established in 1988, NACA set a goal to build strong neighborhoods through affordable homeownership.
What Does NACA Do?
NACA prepares future homeowners with financial education and support. The organization also provides financial counseling to make sure a buyer can handle the commitment needed to buy a home and pay for ongoing future expenses associated with homeownership. NACA members also have access to lenders offering a low-rate, no-fee mortgage loan.
Homebuyers who would not qualify for a conventional mortgage may turn to NACA for assistance. NACA does not use a credit-score-based approach to pre-qualifying homebuyers. Instead, the nonprofit organization developed its own technology and underwriting guidelines focusing on character-based lending. If applicants become NACA-qualified, they can apply for a mortgage through the organization’s homebuying program.
How NACA Helps Homebuyers
NACA has over 40 offices around the country, with many located in large cities such as New York City, Boston, Chicago, and Washington, DC. NACA does not originate mortgage loans but works with outside lenders, such as Bank of America, to provide what the nonprofit describes as the “Best Mortgage in America.” Between 1996 and 2021, Bank of America and NACA’s partnership resulted in over 42,000 mortgage loans.
NACA believes in the power of homeownership and strives to help low-and-moderate income buyers who may not typically qualify for a mortgage. Each year, NACA holds community events across the country in Queens, NY, Baltimore, MD, and Miami, FL. These events draw thousands of attendees wanting to learn about this unique home-buying opportunity.
The organization’s approach starts by educating potential homebuyers through four-hour workshops. The program’s loan approval philosophy considers an applicant’s employment stability and ability to pay bills considered under their control.
Additionally, NACA assists with other aspects of homeownership, including home renovations, through their Home and Neighborhood Department (HAND). After settlement, the Membership Assistance Program (MAP) supports new homeowners and helps those in financial distress avoid foreclosure.
What Does NACA Require From Homebuyers?
If you’re interested in a NACA mortgage, you can learn more about the organization by attending a local event and speaking with their employees and volunteers. To participate in the NACA process, you should plan to do the following:
Attend a Homebuyer Workshop
The process starts with a free Homebuyer Workshop. You do not have to join NACA to attend this initial event. At the workshop, you’ll learn about NACA’s qualification process and hear testimony from others who have used NACA to help buy their home.
Live in the home you purchase
NACA provides access to financing for buyers interested in purchasing a home that will serve as their primary residence. NACA will place a $25,000 lien on the property to ensure that the home remains owner-occupied when purchased using a NACA mortgage. You cannot use the NACA program to buy an investment property, except for multi-family properties where owners live in one of the units. When you purchase a home through NACA, you cannot own any other home. The NACA program allows timeshares.
Personally participate in the organization
NACA requires its participants personally contribute to the organization through advocacy or volunteering at a minimum of five events each year. NACA also charges a nominal membership fee of $25.
NACA Loan Terms
Buyers who become NACA-qualified can apply for a mortgage through the nonprofit’s lending partners and receive a low-rate, no-fee loan. Although the NACA program prioritizes low- and moderate-income individuals, higher-income buyers wishing to purchase homes in neighborhoods identified as “priority areas” may also participate. However, non-priority buyers may receive less favorable interest rates.
Typically, NACA mortgage loans offer the following terms to homebuyers:
- A 15 or 30-year duration,
- Below-market, fixed interest rates,
- No required down payment,
- No mortgage insurance (PMI),
- No closing costs. The lender covers the costs of the appraisal, title, and any other fees.
Additionally, a NACA participant may buy down the loan’s interest rate to reduce their monthly mortgage payment further. Homebuyers can use grant money or other financial assistance to help purchase the home.
Each 1% of the loan value paid upfront buys down .25% of interest on a 15-year term loan. For a 30-year term, each 1.5% of the loan value reduces the rate by .25%. For example, an additional $1,000 paid at closing on a $100,000 loan would lower the rate of a 15-year mortgage from 3.00% to 2.75%. Using a mortgage payment calculator, you can determine that the lower rate would decrease the monthly payment from $691 to $675 and save $2,154 in interest over the life of the loan.
Similar to conforming mortgages, NACA sets a loan limit or maximum acquisition cost. Higher-priced areas, like New York City and Boston, allow for a higher acquisition cost.
What is the NACA Program Process for Buying a Home?
If you’re considering buying a home with NACA, it’s a good idea to get in touch with your local office and discuss the timing of your purchase. The qualification process is lengthy, and NACA estimates it could take three to six months to become pre-qualified for a mortgage. Once you receive approval and find a home to buy, NACA states that it takes an average of 21 days to close.
Attend a homebuyer workshop (HBW) and begin the program
All NACA program participants must attend a homebuyer workshop. After this workshop, participants will receive a NACA ID number. If you’d like to continue with the program, you’ll need to sign on to the NACA portal with that ID and upload the requested documents.
Intake session and financial counseling
After uploading your financial information, you can schedule an intake session to receive financial counseling through NACA. At this time, the counselor will help you create and review a household budget. Together, you will determine what steps you need to take before becoming NACA-qualified. Counselors may also discuss the ongoing financial commitment needed to buy a home. They can help to set expectations about future costs such as utilities, property taxes, home insurance, HOA dues, home repairs, and maintenance.
When meeting with a financial counselor, discuss your reasons for buying a home. Those who dream of owning a home often wish to take advantage of an investment in real estate, which tends to appreciate over the long term. Also, you may desire the stability of a housing payment that does not fluctuate as much as rental payments. As a potential homeowner, you should prepare to budget accordingly. When you own your own home, you can focus your spending on items you prioritize when it comes time for upgrades.
Save the required funds
Homebuyers must save for the cost of a home inspection and a pre-payment for property insurance and taxes. Participants can also save an additional reserve for costs like utility deposits that then help transition into homeownership. They must also save the difference between the future expected mortgage payment and current rental payment.
NACA Qualification
NACA Qualification equates to mortgage prequalification. When you have taken the necessary steps to become NACA qualified, you will determine an affordable mortgage payment to help you set a home-buying budget. This amount will typically not exceed 33% of your gross monthly income but can be higher in more expensive housing markets. The mortgage payment combined with your additional monthly debt payments cannot exceed 40% of your gross monthly income.
Character-based lending
NACA’s focus on character-based lending translates into a unique loan qualification process. The organization prioritizes stable employment and requires that participants remain employed for a year before becoming qualified.
While NACA does review credit report information, they take a closer look at payments specifically under the potential homebuyer’s control, such as their rental payments over the past twelve months. Medical bills and any predatory loans do not affect the NACA qualification decision.
Additional workshops
Once a buyer is NACA qualified, they will attend a property workshop and a home purchase workshop before beginning their home search.
The property workshop or webinar teaches participants how to determine if a home for sale meets their affordability criteria. Participants will also learn about the home inspection process, the different types of properties, and the mortgage approval process.
Participants can attend the purchase workshop with their real estate agent, who will guide those looking to find an affordable property that meets their needs and NACA’s requirements.
Home Search
During the home search phase, buyers can use their own realtor or an in-house realtor affiliated with NACA. The organization also works with local housing associations such as NYC’s Housing & Preservation Development to help buyers find affordable housing.
Home Purchase
After a seller accepts an offer, the lender will finalize the mortgage according to NACA’s current agreed-upon terms. At this time, NACA requires the buyer to arrange a home inspection. If the property needs repairs or renovations, NACA can assist buyers with securing additional financing. If needed, NACA’s rehab department, HAND, will work with buyers who plan to renovate their homes substantially.
Alternatives to NACA
NACA offers an exceptional opportunity for homebuyers who may not qualify through the traditional mortgage approval process, but the program may not meet everyone’s specific needs. NACA’s longer processing times and required personal commitment may not be the best fit for all buyers. Although NACA does not use credit scores for mortgage qualifications, some buyers may not meet their underwriting criteria which include at least twelve months of stable employment and twenty-four months of on-time payments, with a strong focus on rental payments.
A few alternatives to consider include:
First-time homebuyer programs
Some lenders offer their own first-time homebuyer programs. You may also qualify for a mortgage credit certificate (MCC) through your state. This program gives you a tax benefit for buying a home in the form of a credit against your federal tax owed. States and some towns or cities also offer programs that help finance down payments and closing costs.
Down payment assistance
If you’re falling short on your down payment, you can seek help from various sources. Examples include the New York City HomeFirst Down Payment Assistance Program, which offers qualified buyers up to a $100,000 forgivable loan. To receive funds through this program, the buyer must qualify for first-time buying status and commit to living in the home for several years.
Second mortgage loans, such as a piggyback loan, also help homebuyers by providing funds for a down payment. Monetary gifts from friends or relatives are another option as long as the giver signs an acknowledgment that they do not expect repayment.
Other local nonprofits or community housing associations
Organizations similar to NACA exist in many communities across the country, such as Washington DC’s Home Purchase Assistance Program (HPAP), which provides up to $202,000 in home financing assistance for qualified applicants purchasing a home in the district.
FHA Mortgage Program
Buyers with lower credit scores and smaller down payments may qualify for an FHA loan. The Federal Housing Administration insures the loan, making them more attractive to lenders. Borrowers must pay mortgage insurance as part of this program, but obtaining an FHA loan may be faster than NACA’s lengthier timeframe.
VA and USDA loans
Veterans may apply for a VA loan to secure home financing with no down payment, low rates and fees, and no mortgage insurance requirement. For low-to-moderate income homebuyers in rural areas, a USDA loan offers a low-rate, zero down payment mortgage backed by the U.S. Department of Agriculture.
Conclusion
The NACA program strives to support those who dream of owning their own house. If you think NACA’s program can help you reach this important milestone, you can sign up to attend one of their local events and find out more about what the process entails. With a strong national presence, prospective homebuyers across the country can benefit from the program’s offerings to achieve their dream of homeownership.
