NACA Mortgage Program Pros and Cons | FREEandCLEAR (2024)

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Updated December 11, 2022

No Down Payment

The NACA Mortgage Program enables eligible borrowers to buy a home with no down payment. Saving money for a down payment can be one of the biggest obstacles to buying a home, especially for people who earn a decent monthly income but struggle to put money away due to monthly bills and other expenses. By enabling borrowers to finance 100% of the purchase price of a home, the NACA Mortgage Program makes home ownership more attainable.

No Standard Closing Costs

The NACA Mortgage Program does not require applicants to pay standard mortgage closing costs such as lender, appraiser, title company and settlement agent fees, which can run thousands of dollars depending on your loan amount. In many cases borrowers can afford a monthly mortgage payment and even a down payment but they fail to take closing costs into consideration when determining if they can afford to by a home. Borrowers are often surprised by how much closing costs are and may be forced to delay buying a home to save more money to cover the unexpected costs. Although the program typically requires applicants to prepay property tax and homeowners insurance at closing and to pay home inspection, NACA membership and credit report fees, it eliminates other non-recurring closing costs which makes getting a mortgage and buying a home significantly more affordable.

Low Interest Rate

The interest rate on a NACA mortgage is usually less than rate for other low or no down payment programs. Additionally, borrowers have the option to buy-down the interest rate to 0% by increasing the mortgage amount, paying out of pocket or using a gift or grant. Paying a lower interest rate, including potentially as low as 0.125%, enables borrowers to save a significant amount of money on their monthly mortgage payment and total interest expense over the life of their mortgage.

We recommend that you compare the loan terms for a NACA mortgage to other low down payment programs. Contact lenders in the table below to learn about the programs they offer. Shopping multiple lenders and comparing loan proposals and programs is the best way to find the mortgage that is right for you.

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Current FHA Mortgage Rates in Slough, England as of March 21, 2024

No Private Mortgage Insurance (PMI)

The NACA program does not require borrowers to pay private mortgage insurance. This is in contrast to most conventional low down payment mortgage programs that charge a monthly PMI fee and government-backed programs that charge both upfront (VA, FHA, USDA) and monthly mortgage insurance fees (FHA and USDA). NACA offers a Membership Assistance Program (MAP) to borrowers who are struggling to pay their mortgage, for free.

Flexible Borrower Qualification Guidelines

The NACA Mortgage Program uses more flexible, non-traditional guidelines to determine an applicant's ability to qualify for a mortgage. For example, instead of using a minimum credit score, the NACA program uses a character-based borrower credit evaluation. Additionally, borrowers are not disqualified if they experienced a financial hardship caused by a significant illness. Program borrower qualification criteria focus on a borrower's ability to afford their total monthly housing expense which includes your mortgage payment, property taxes, homeowners insurance and other potentially applicable expenses such as homeowners association (HOA) fees. The NACA qualification process focuses on the applicant's monthly income, debt and savings to ensure that you can afford to own your home after your mortgage closes. Using more flexible guidelines enables more people to qualify for the NACA Mortgage Program.

Extensive Borrower Resources

NACA offers extensive home buyer counseling and support before, during and after the mortgage process. These resources are designed to help guide you through the home purchase and mortgage processes and make sure that you make sounds decisions based on your financial profile. NACA counselors are involved in determining what size mortgage you can afford, reviewing the property purchase contract and mortgage closing. Additionally, NACA offers post-purchase counseling to assist distressed homeowners.

Use the FREEandCLEAR Lender Directory to search for twenty-five mortgage programs including many no or low down payment programs.

Information and Time-Intensive Application Process

The application process for the NACA Program is potentially more information and time-intensive than for other mortgage programs. Applicants must attend a home buyer workshop as well as financial counseling sessions. Additionally, the NACA Program requires that borrowers provide more information and documentation than they would typically be required to provide for standard mortgage programs. For example, borrowers are required to provide a personal financial budget as well as a debt payment and cash flow history. Because of its level of involvement, the NACA mortgage process may take longer than a standard loan, which can put applicants at a disadvantage when purchasing a home as home sellers usually prefer buyers who can close quickly. Although NACA has implemented measures to reduce its application process -- including offering "Achieve the Dream" events where members can be approved for NACA in one day -- and most NACA loans close within 28 days, borrowers should make sure that the program meets their timetable.

Upfront Costs to Close Your Mortgage

Although you are not required to pay standard closing costs, you are still required to come up with significant funds to close your mortgage. You are required to pay for a year of property tax and homeowners insurance in advance when your loan closes. You are also required to pay an earnest money deposit on the home you want to buy although this deposit is refunded back to you at closing. You also need to come up with the funds for certain closing expenses including the property inspection report, NACA membership and credit report fees. Collectively, all of these cost and expense items can run thousands of dollars depending on the property purchase price and other factors.

Reserve Requirement

In addition to the costs outlined above, you are also required to hold financial reserves in your bank account when your mortgage closes. The reserve requirement for a NACA loan depends on your property type and payment shock, which is how much your monthly housing expense -- which includes your mortgage payment, property tax, homeowners insurance and other potential costs such as HOA or co-op dues -- increases as compared to your current housing expense, such as your rent.

If your payment shock is less than $300, you are required to hold one month of total monthly housing expense in reserves at closing. For example, if your monthly mortgage payment plus taxes and insurance totals $1,500, you need to demonstrate that you have $1,5000 in your bank account at closing.If your payment shock is greater than $300, you are required to hold two months of reserves. For a multi-unit property, the reserve requirement is four-to-six months of total monthly housing expense. The reserve requirement is a significant financial commitment that NACA applicants should keep in mind as some other low down payment programs, including the FHA program, do not have a reserve requirement for single unit properties.

Loan Limits

The program applies loan limits that cap your mortgage amount. NACA uses the conforming loan limit, which is $726,200 for a single unit property in most states. The conforming loan limit for a single unit home in Alaska and Hawaii is $1,089,300. Because of the loan limits, borrowers in more expensive areas may find it challenging to find homes they can buy with the program. Although NACA uses mortgage limits, there is no maximum property purchase price if you make less than 100% of the median income for the area in which the property is located or if the property is located in a designated "targeted" area.

Property Location Limits

The NACA Mortgage Program is only available to home buyers in states where NACA is licensed. NACA has almost 50 offices in approximately 30 states, although that means that borrowers in the other states where NACA is not licensed are not eligible for the program. Review this interactive map of NACA locationsand contact NACA to learn if the program is available in your state.

Restrictions on Mortgage Type and Program

The NACAMortgage Program only applies to purchase mortgages and you cannot use the program to refinance an existing mortgage. Several other low or no down payment mortgage programs apply to both purchase mortgages and refinances including the HomeReady, Home Possible, FHA and VA mortgage programs. Additionally, only 15 and 30 year fixed rate mortgages are eligible for the program. Borrowers cannot use adjustable rate mortgages (ARMs) or interest only mortgages with the program. Restricting the mortgage program that borrowers can use may limit your financial flexibility. On the positive side, a fixed rate mortgage offers borrowers certainty that their interest rate and monthly payment will not change over the life of their loan.

Restrictions on Property Ownership

Only owner-occupied, primary residences are eligible for the NACA MortgageProgram. Second homes as well as investment properties are ineligible for the program. Additionally, the applicant cannot own other properties.

Ongoing Home Owner Volunteer Requirement

NACA Program participants are required to volunteer at at least five housing advocacy events annually. Examples of events include community outreach, marketing and other advocacy activities. The home owner volunteer requirement is unique to the NACA Program.

NACA Mortgage Program Guide

Review our comprehensive overview of the NACA Mortgage Program including program eligibility, key program loan terms and other important program information.

Mortgage Rates

Borrowers should compare mortgage rates for the NACA Mortgage Program to rates for other mortgage programs. Use our mortgage rate tables to contact lenders in your area and to view updated interest rates and fees for multiple mortgage programs. Comparing proposals from multiple lenders is the best way to save money on your mortgage.

Best No or Low Down Payment Mortgage Programs

Review and compare multipleconventional andgovernment-backed low or no down payment mortgage programs to understand key program benefits and eligibility requirements.

Harry Jensen, Mortgage Expert

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