What is a NACA mortgage?

Understanding the NACA mortgage

For low- and moderate-income households, the NACA offers home loans that don’t require much money up front. These mortgage loans are available through the NACA purchase program, but you must first qualify to apply.

NACA home mortgages offer many benefits to borrowers that can help lower their overall housing costs. These include:

• No down payment or third-party closing costs
• No mortgage fees (origination or otherwise)
• Interest rates below the national average
• A choice of 15-, 20- or 30-year fixed-rate terms
• No private mortgage insurance (PMI)
• No minimum credit score

NACA mortgages make housing more affordable for households with lower incomes by eliminating the costly fees and upfront payments most traditional mortgages require. Borrowers can also get interest rates up to 0.75% (or more) below average mortgage rates, making monthly payments much cheaper.

Eligibility and requirements

There are income and purchase price limits for NACA mortgages, which vary based on where you’re looking to buy a home. To qualify, you must become a NACA member and pay annual dues, which are currently at $36 per household (prorated at $3 per month). These dues must be paid as long as you have a NACA mortgage.

Priority members must have an income at or below the area median income for the Metropolitan Statistical Area (MSA). If your income is above the area median income (AMI), you’re considered a non-priority member and must purchase a home where the median income for that specific census tract is below the AMI.

Here are some other specific eligibility requirements you must adhere to:

• No member of the household can have an ownership interest in any other property at the time of closing.
• You must occupy the home over the life of the NACA mortgage.
• You must be willing to abide by NACA’s terms of membership, participation and eligibility.

You must also commit to at least five volunteer or advocacy activities each year — such as conducting neighborhood outreach, attending rallies, distributing program information or engaging in other forms of community advocacy. At least one activity must be done before qualification and one before closing.

Lenders will review your payment history and other factors to determine your eligibility. There are also debt-to-income (DTI) limitations, including a 40% maximum DTI on all debts. Your monthly housing costs, including mortgage payments, property taxes, insurance and any HOA fees, can’t exceed 33% of your gross income.

Eligible properties for a NACA mortgage include single-family homes, condominiums, townhomes, co-ops, multifamily homes (two to four units), mixed-use properties, and manufactured or modular homes. There are home price limitations for the type of home you’re buying and the area you plan to purchase in.

NACA loan limits

Loan limits are determined by the size of the house and the housing prices in the area.

How the NACA program works

The NACA program starts with membership and counseling, then moves to mortgage qualification and closing.

The first step is to join NACA and attend a homebuyer workshop, which introduces the program requirements and next steps. After that, you’ll meet with a housing counselor and begin the NACA qualification process, during which NACA reviews your finances to confirm you can afford a mortgage under its rules.

To qualify, you’ll need to provide documentation such as:

• Pay stubs: Last 30 days
• Tax returns: Last two years
• W-2s: Last two years
• Bank statements: From the last three months
• Self-employment records: The last 12 months of bank statements

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NACA doesn’t issue mortgages directly, but it partners with banks that fund the loans under NACA’s terms. This means you’ll apply for a mortgage through a partner bank.

Preapproval for a NACA mortgage may take several months, depending on your application. Once you’re preapproved, you can shop for a home that meets the NACA requirements and make an offer. Once the offer is accepted, you’ll need to complete the purchase and closing process.

NACA assigns a closing coordinator to help you finalize your home purchase. NACA aims to close mortgages within 28 days of a signed contract, though the timeline depends on cooperation between the member, the NACA staff and the lender.

Benefits of a NACA mortgage

There are several benefits to a NACA mortgage, including low upfront costs and low interest rates. Here are a few benefits to consider:

• Low interest rates: NACA mortgages offer interest rates below national averages. This can save a significant amount of money over the life of the loan.
• No down payment required: You don’t have to put down 5% or more on a home, which can save you tens of thousands of dollars up front.
• No third-party closing costs: While you still need to bring some money to the closing table, you don’t have to pay third-party closing costs, such as title insurance or appraisal fees.
• No minimum credit score required: NACA reviews payment history and overall finances instead of relying on a minimum credit score.
• No PMI: Unlike traditional mortgages, there’s no PMI needed, even with no down payment.

Challenges and considerations

NACA mortgages can save you money, but there are several hoops to jump through — and not everyone will be approved. Here are a few considerations:

• Income limits: If you make over 100% of the AMI for your location, you’ll pay a higher interest rate or may not be eligible.
• Price limits: Your house price can’t be over the limits provided by NACA, which are capped at $548,250 for a single-family home in most areas.
• Location limits for some borrowers: If your income is above the AMI, you must purchase a home in a designated low- to moderate-income area to qualify.
• Long approval process: The approval process can take three months or more, which can delay the homebuying process.
• Ongoing commitment: You must attend at least five NACA events per year to maintain your qualification.

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