Home Real Estate What Is a NACA Mortgage? (How Does it Work & More)
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What Is a NACA Mortgage? (How Does it Work & More)

The Neighborhood Assistance Corporation of America (NACA) offers an incredible mortgage program that makes homeownership more affordable. Eligible borrowers can expect no down payment or closing costs, attractive terms, and hand-holding throughout the entire process.

Here’s everything you must know about the NACA mortgage.

What Is a NACA Mortgage?

The NACA Mortgage program helps thousands of people purchase homes every year. They offer below-market mortgage rates and financial counseling programs to help more people take advantage of homeownership. 

The program is available as a 15-, 20-, or 30-year mortgage and is termed the “Best Mortgage in America.” Members can use the program on virtually any property type, including single-family, condos, co-ops, multifamily, and mixed-use properties.

The average number of days to close on an NACA Mortgage is just 2, and their foreclosure rate is 0.00012%. All borrowers get the same terms with an NACA Mortgage, no matter their credit scores or financial situation.

Bank of America is the NACA Mortgage’s largest partner, providing a majority of the funding for the program. NACA has partnered with Bank of America for more than 25 years to offer the program.

How Does a NACA Mortgage Work?

The NACA Mortgage is meant for low-to-moderate-income earners and to fill low-to-moderate-income areas. They call these Priority Members and Priority Areas, respectively.

To be a Priority Member, your total income must be less than 100% of the Metropolitan Statistical Area’s (MSA) median income. If your household income exceeds this amount, you must purchase a home in an area with a median income below the MSA.

To be eligible, you must:

  • Not have ownership of other properties
  • Live in the home for the life of the NACA Mortgage
  • Participate in activities that promote economic justice, completing at least five a year, with one occurring before qualification and another before you close
  • Follow the NACA terms of membership
  • Have enough funds for the earnest deposit, home inspection, and prepayment of property taxes and insurance
  • Have proof of reserves of one month of mortgage payments if your payment will increase by $300 or less with the new home and two months if Payment Shock Savings exceeds $300

How to apply

To apply for an NACA Mortgage, you must do the following:

  • Attend an NACA Homebuyer Workshop.
  • Become an NACA member.
  • Provide your qualifying information.
  • Work with an NACA counselor to determine eligibility.
  • Attend a Property and Purchase Workshop.
  • Find a property, and all parties must sign a sales agreement.
  • Satisfy any mortgage conditions, including providing updated income documentation.
  • Work with your loan officer to finalize the loan.
  • Close your loan.

Benefits of NACA Mortgages

The NACA Mortgage program has unique benefits other loans don’t offer, including:

  • No down payment required
  • No closing costs
  • Doesn’t require mortgage insurance
  • Has competitive interest rates
  • Doesn’t have any hidden fees (only the $25 membership fee)
  • Sellers can provide up to 10% of the sales price to help with interest rate buydown

Disadvantages of NACA Mortgages

  • Not everyone qualifies
  • No option for construction loans
  • Borrowers don’t have equity in the home
  • Limited to NACA-eligible areas

NACA Mortgage vs. Traditional Mortgage

The NACA Mortgage has much more relaxed guidelines than a traditional mortgage. The program also doesn’t require a down payment or have any closing costs. Traditional mortgages, such as FHA loans, often have higher interest rates and more fees.

Also, unlike FHA loans or conventional loans with less than 20% down, NACA loans don’t require mortgage insurance. This may save you several hundred dollars a month and thousands over the mortgage term.

The NACA Mortgage is often even better than a VA loan because there are no closing costs or upfront fees, like VA loans charge. NACA loans often have lower interest rates too.

The NACA Interest Rate Buydown

The NACA Mortgage program offers competitive interest rates, but it enables members to secure an even lower rate with the interest rate buydown program.

To lower your rate, you can use your own funds or funds from the seller or a grant to buy down the interest rate. The buydown cost is the same for all members. Paying 1.5% of the loan amount lowers the rate by 0.25% for 20- and 30-year terms, and 1% lowers it to 0.25% for 15-year terms.

Does the NACA Allow Refinances?

Unlike traditional mortgages, the NACA doesn’t offer a refinance program. They strongly feel it’s better to modify an unaffordable mortgage than refinance and pay more out of pocket.

Final Thoughts 

If you don’t own a home and your household income is less than 100% of the MSA’s median income, the NACA Mortgage may offer benefits you wouldn’t see with any other program. 

If you don’t qualify, there are other options, such as down payment assistance programs or even FHA loans, but you’ll need more money out of pocket than NACA loans require.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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