Insights, Mortgages & Renting

What is a NACA Loan?

flik eco finance personal what is a naca loan

You have just married your dream girl and brought her to your home, but the lady from the metropolis is not happy to live in your small-town home. She does not want to start her family in a crowded four-walled space, but you haven’t got enough money for a new house. 

Worry not. The Neighborhood Assistance Corporation of America (NACA) has your back!

What is a NACA Loan Table of Contents

What is a NACA Loan?

Who Qualifies for a NACA Loan?

Naca Loan Program Requirements

Foolproof Steps to Get a NACA Loan

What Are The Advantages of a NACA Loan?

What Are The Disadvantages of a NACA Loan?

Should you go for a NACA loan?

FAQs on NACA loans

What is the NACA?

In What States Does NACA Operate?

What Upfront Funds Are Needed For A NACA Loan?

Do I Need To Live In A State With A NACA Office To Get A NACA Loan?

Does NACA Put A Lien On The Property If I Take Out A NACA Loan?

How Much Does A NACA Membership Cost?

What is a NACA Loan?

NACA can save your happy married life by getting you a home that your wife will love. It is a nonprofit and HUD-certified homeownership and advocacy organization that helps financially unstable people to own a new house by offering loans at below-market interest rates with no down payment or closing costs.

So far, the most recognized service of NACA is the “purchase program,” which lets homebuyers connect with an affordable mortgage. 

What perks do you get if you are a first-time homebuyer at NACA? 

Well, with a super luxurious home, you enjoy:

  • A below-market interest rate
  • No closing costs
  • No credit score requirement
  • No down payment
  • No points or fees

According to the NACA, as of July 14, 2020, the interest rates offered on NACA purchase loans for 30-year were 3% fixed-rate loans, and for 15-year the fixed-rate loans were 2.375%, making mortgage rates for a NACA loan highly competitive in the market.

However, you should know that funds for loans are not provided by the NACA housing program directly. Instead, you are connected with a participating lender through the NACA home program. There is an assistance program called the Membership Assistance Program (MAP), which is post-purchase and offers a guarantee for your loan in case you default. This guarantee from the NACA loan program is what attracts the lender to more affordable rates.

NACA’s MAP program is just beyond an affordable mortgage, and it stays with you like a loyal financial advisor that would care for your finances and help you stay in your home. This not only eases your financial struggles but also lends a helpful hand of financial assistance and temporary forbearance to the borrowers.

Who Qualifies for a NACA Loan?

If your low income has always come your way to get a decent loan for a home, then the good news is that the NACA loan program has no income limits for first-time home loan buyers. However, the program has a few other requirements that need to be filled by low or moderate-income individuals to call a home their own.

This means if a borrower lives in a metro area with below the median income, they are qualified to buy a property within that metro area with the help of the NACA loan. Although, borrowers with more income than the median can only choose to buy a property in selected areas.

Other than the income levels, a typical mortgage can be availed based on debt-to-income ratios and consumer credit scores. The application will be evaluated on other factors such as on-time payment history as well. With these requirements, you can qualify for the mortgage program.

Naca Loan Program Requirements

  • You or anyone in your household cannot be the owner of any other home when you are closing on a NACA loan.
  • While you have a NACA loan, you must be living in the home.
  • To become a member of the NACA, an annual membership fee of $25 is applied to you.
  • You can avail five membership activities in a year. The activities can be anything like NACA office volunteering, peer-lender committee participation, joining a NACA advocacy program or protest, or helping out other members with the process of homebuying.
  • You can not purchase a home exceeding local loan limits for conventional mortgages. The limit for single-family homes is $510,400 in low-cost areas, and it is $765,600 in high-cost areas from 2020.

Foolproof Steps to Get a NACA Loan

Availing of the NACA loan program is a very simple process and involves some steps to be followed. The major process needed to get a NACA program mortgage includes the following steps.

Step 1: Participating in A Free Homeownership Seminar

Since you have finally decided to go for a NACA loan, the first thing to do is participate in a free educational homeownership seminar in your area. Such educational workshops are usually held at local NACA offices twice or thrice a month. The workshop will help you understand the costs of homeownership and NACA loan eligibility criteria. You can find the schedules of such workshops in your city or area.

Step 2: Housing Counselor Meeting

Once you have attended the workshop, now you head toward a meeting with a housing counselor. The housing counselor should help you identify an adequate budget based on your income. He will provide you with an action plan with all the steps and instructions to be financially stable to start the NACA home buying program.

After completing the provided action plan, it may take several months to become NACA-qualified. It is always suggested to report the progress to your counselor until you are fully certified.

Step 3: Sustain Your Finances And Fulfil the Requirement of Minimum Savings

Once approved, the NACA qualification is only valid for 90 days. Therefore, after becoming certified by NACA, you have a few responsibilities to fulfill:

  • Manage your income
  • Make timely payments of your bills
  • Refrain from taking on new debt
  • An amount equal to your current housing payment minus your future mortgage amount must be saved every month.

Step 4: Take part in a Purchase Workshop And Look For A Home

At NACA, purchase workshops are held every Thursday from 6 p.m. to 7:30 p.m. You must attend that workshop because it helps you in finding properties that come in the range of your affordable price. Also, you can take assistance from a NACA-approved real estate professional to search for a home.

Step 5: Obtain A Qualification Letter And Submit The Purchase Contract

After finding the home you are interested in buying, you need to get a property qualification letter from your housing counselor. You can also take help from the real estate agent in drafting an offer letter, mentioning the needs for any renovations or repairs.

Step 6: Get the Home Inspected

Next, you will have to schedule a home inspection with a NACA-approved home inspector to qualify for the mortgage. It may also include a pest inspection, safety codes, or any health and structure problems. If any issue is detected, it must be resolved before moving into the house.

Step 7: Seek Mortgage Consultancy And Submit Your Loan Data

Now comes the step to officially applying for a NACA loan. To verify yourself as NACA-qualified, you will be asked to prove that minimum saving requirements are met, and the income is maintained without taking on new debt. After this, you will have to submit the following documents to be provided to your lender:

  • A sale contract along with an executed purchase
  • Pay stubs of the last thirty days
  • In the case of self-employment, bank statements for the last twelve months.
  • All of your accounts’ bank statements for the last ninety days
  • Validation of timely rental payments

Step 8: Wait For Your Mortgage To Close

Look out for the insurance for homeowners and save your budget for all the needed repairs and renovations; until your mortgage gets processed completely.

Step 9: Mortgage Closing

NACA loans need no closing costs, yet you should present a valid check showing expenses such as prepaid taxes. At your closing, you will meet with the home seller, the seller’s attorney and/or agent, your real estate agent, the lender’s attorney or settlement agent, and your attorney to verify the mortgage documents and seal the deal.

Step 10: Use The Membership Assistance Program (Map)

Once you have closed on a NACA loan, 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:

  • Real estate services to help sell your home.
  • Temporary forbearance options.
  • Financial assistance for approved homeowners.
  • Budgeting and other homeownership counseling.
  • Loan modification in the event of changed financial circumstances.
  • Communication with your lender.
  • Additional services as they become available through NACA.

What Are The Advantages of a NACA Loan?

No Credit Score Requirements

Even if you have significantly less credit, that may require you to pay high-interest loans; otherwise, you can still buy a home with this unconventional home loan from NACA.

Zero Fees Mortgage Fees

You are free from all kinds of fees such as origination fees, application fees, or any other unknown fees. Also, these loans do not have closing costs.

Low Interest Rates

Your NACA loan will come with a below-market interest rate. You get really good annual percentage rate on a NACA loan.

No Private Mortgage Insurance

With a NACA loan you luckily don’t have to pay for private mortgage insurance. You just have to pay NACA’s $25 annual membership fee, which is considerably cheaper than the average private mortgage insurance (PMI) payment.

Financial Counselling

The NACA loan process involves financial counseling from scratch. This counseling can help you manage your bills and housing payments, it is so valuable.

What Are The Disadvantages of a NACA Loan?

You Have to Live in a NACA service area

You do not have the freedom to live in a home in a state and service area that NACA does not cover.

There Are Purchase Areas Limitations

You are only allowed to buy a home in a NACA preferred area, even if your household income exceeds the median income where you hope to buy a home.

The Process Can Be Quite Time Consuming

NACA loans require many in-person meetings, making the procedure significantly longer and disturbing your daily schedules.

There Are Property Value Limits

Your home loan cannot exceed the conforming loan limits of $510,400 in most areas and $765,600 in high-cost areas.

There is an Ongoing Commitment

NACA members must pledge to attend at least five NACA events per year.

Should you go for a NACA loan?

If there is no urgency in buying a home and you think you can benefit from financial counseling and homeownership workshops, a NACA loan can be the best option to find your dream home. But if you want just to make it happen over the night, you can consider some other programs such as:

U.S. Department of Agriculture (USDA) home loans. Consumers who are willing to buy a property in the countryside can consider taking the USDA loan program. USDA loans require a credit score of a minimum of 640 and do not require any down payments.

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.

FAQs on NACA loans

Wondering what some of the most popular questions about NACA loans are? We’ve put together some answers to questions that people usually ask.

What is the NACA?

A: The Neighborhood Assistance Corporation of America (NACA) can be defined as a nonprofit and HUD-certified organization that helps financially unstable persons purchase their own homes. This is done through proper financial counseling and then offering loans for homeownership. NACA can be accessed to get affordable mortgages and other additional services with it.

In What States Does NACA Operate?

Following states have the offices and operational NACA centers: 

  • Florida
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Georgia
  • Hawaii
  • Illinois
  • Louisiana
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nevada
  • New Jersey
  • New York
  • North Carolina
  • Ohio
  • Pennsylvania
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Alabama
  • Wisconsin

What Upfront Amount and Down Payments Are Needed For A NACA Loan?

There are are no closing fees with a NACA loan which is a really good thing. You are required to get together a mortgage deposit for your new house. With a NACA loan you will also need to pay for a home inspection, this is also called a home appraisal. 

The other fees you need to keep in mind are escrow fees, property insurance and taxes. Things can really add up when you are buying a new home.

Do I Need To Live In A State With A NACA Office To Get A NACA Loan?

You just need to complete the multi-step process to become NACA approved / NACA Qualified. Once you’ve done this you can get a NACA loan.

Does NACA Put A Lien On The Property If I Take Out A NACA Loan?

Yes, the NACA places a soft-second lien on the property, ensuring that the member stays in it for the duration of the NACA loan. It also ensures that NACA gets reimbursed for any mortgage payment assistance they give.

How Much Does A NACA Membership Cost?

Active membership to NACA costs $25 per year.

Do you know someone who could buy their dream house with a NACA loan? Make sure you share this article with them and help them bring their dreams to life!

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About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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