NACA is not a lender. Bank of America or CitiMortgage write and service all NACA loans. NACA acts more like an underwriter with extremely strict and non-conventional guidelines. NACA is very well-known for their “Save the Dream” campaign during the mortgage crisis following 2008, but they also provide assistance with new purchases. Just like the other mortgage gaurentors, NACA finances both move in ready and distressed homes.
NACA Purchase Options (Fees and Volunteer Requirements) & Down-Payment
There is a $50 monthly membership fee to join the NACA program. You must be an active member to work the NACA program. To keep things in perspective, $50 is usually less than mortgage insurance charged by both FHA and conventional loans. The membership fee includes member benefits such as helping saving your house if you should run into hard times. Ask the mortgage counselor for more details.
All borrowers are responsible for prepaid expense items such as earnest money deposit, home inspection and termite inspection fees.
No members of the household can have ownership interest in another house when you apply for a NACA mortgage. This does not mean the program for first time buyer only. Anyone can take advantage of the program.
NACA Refinance Options
Homeowners must call the Home Save Department at 801-401-6222 and have a Home Save Advocate assigned to assist you throughout the process in obtaining a refinanced, affordable mortgage. The advocate will assist you with preparing for your initial counseling session. The first few steps in the Home Save process include:
- Completing the Web-file consisting of inputting your personal and financial information.
- Identifying documents necessary for your submission to your servicer/lender.
- Scheduling a counseling appointment.
Debt to Income Ratio’s
NACA’s debt to income ratio is 31/40. The front end DTI is 31% and the back end DTI is 40%. Read about calculating DTI ratios here.
Credit Requirements
There is no minimum credit score requirement, but you cannot have any late payments within the last 12 months. NACA will use alternate credit if you do not have enough traditional credit trade lines to show financial responsibility. If you have late payments on your credit report you will be waiting at least 12 months from the date of your last late payment before receiving an approval. When the counselors review your credit they may have recommendations based on your personal report. Read more about credit conditions of the NACA program here.
Eligible Property Type
Listing can be for sale by owners, resale (on the MLS), new construction, REO (foreclosures) or HUD homes). Properties may be existing homes, new construction or homes in need of renovation.
Eligible properties are condominiums*, townhouses, coops, residential/commercial combos, owner-occupied one-, two-, three- or four-family homes.
*Eligibility for a condo requires 50% owner-occupancy or a financially strong condo association.
PMI Costs/Requirements
NACA does not have traditional mortgage insurance. Instead, the $50 membership fee goes to a fund called the Membership Assistance Program. The program will pay up to three months of mortgage payments for you if you have financial difficulties. NACA’s Peer Lending Committee, approves assistance for borrowers. Being a member of committee along with other fellow NACA homeowners is one of the options of fulfilling membership. Speak with your Mortgage Counselor about the details and benefits of membership.
Closing Costs
As a condition of the paid closing costs, all borrowers must select an approved title company vendor listed with NACA in order to receive the no closing costs incentive.
Warnings about the NACA Program
Volunteer Work Required
The program requires five (5) volunteer activities per year. There are numerous ways for you to participate to fulfill the volunteer requirement which include; joining advocacy campaigns that may include protests, demonstrations, actions and/or engaging in litigation against persons or companies that discriminate against or victimize others; volunteer in the NACA office; participate on the peer lending committee; and assist other Members with the home buying process.
Home Buyers and Realtors
NACA may suggest a realtor, however, you do not have use who they suggest. But, it will be good to have someone familiar with the program. There are several stages to the NACA program and each stage can have its own delays. This includes the period after you have been approved, have put an offer in on a house and are waiting for a clear to close.
When making an offer on a property, disclosing you are using the NACA program to acquire a loan might cause a problem. Sellers might tend to back away from those buyers if they are aware of the slow closing process. Be aware of this when you are making offers.
Mortgage Counselors (MC)
There are various complaints about the NACA program not fulfilling some promise or another. It’s extremely easy to perform a Google search and find these complaints on your own. That is why it is important to understand what you’re getting yourself into before dedicating your time to the program.
Understand your limitations for dealing with the NACA program and the work it requires. If you do not have the patience to deal with extended time line then NACA is probably not for you. You might want to consider going with an FHA loan if you have credit issues.
The NACA counselors are overworked and overbooked. They very well might ask you for documents you have previously submitted a second time. Although this can get frustrating, try to be understanding with the counselors and simply provide the information again. If you follow the tips below, providing documents a second time will take little to no effort on your part.
Tips for Dealing with NACA
Be prepared when dealing with the NACA program. It will require a great deal of organization and patients to accomplish getting through the program. Be careful of setting time limitations on the NACA program. The length of time you will need to “work” the NACA program will vary. If a move into a new home is time sensitive, keep the length of time the NACA program requires in mind.
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Timing of Dealing with Programs and Mortgage Counselors (MC)
- If you are renting and your lease is up in three months, trying to buy a house through NACA is not reasonable. Make sure you can extend the lease while you go through the program. or better yet, get into a situation where there is no time limit.
- The worse your credit is, the longer the program will take.
- The less organization skills you have, the longer the program will take.
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Handling Documents
- Keep a copy of all documents regardless of if you have already sent them in.
- Bring all your documents with you to any appointments.
- Make a folder in your email and keep all correspondence in this folder
- Keep all documents requested and sent on a flash drive for easy access and bring this drive with you, you might also consider bring a laptop for ease of access to the files.
- Do not fax documents with a traditional fax. Rather, scan the document and use internet faxing to ensure you get clean copies and a history. Can you use RingCentral, and internet fax service, which is relatively inexpensive. While there are free programs, they usually will limit the amount of pages you can send and do not keep a record of faxes you receive.
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Scheduling Meetings with Mortgage Counselors
- ALWAYS book your next appoint with your counselor before you leave. Do not rely on phone calls or emails to get status on your case.
- If you can find a real estate that is familiar with the NACA program and that realtor has connections this can help you greatly.
Why NACA over FHA and Conventional?
The two biggest benefits of NACA are the minimal down payment cost and the ability to buy the interest to near 0%. Instead of having to use funds for a down payment you can use it for interest rate buy downs.
The interest rates buy downs will be especially important if you plan on staying in the home for a long period of time or you simply plan on keeping the house in the family regardless of who ends up with ownership.
NACA Program Highlights (Interest Rate Buy-down)
Please note, the below information is valid as of 10/29/2016. Like any program things can change. Make sure to check with the NACA homepage or with a mortgage counselor about the details the program.
NACA’s Interest Rate Buy-down Programs
The lowest possible rate for a Bank of America (BOA) loan is 0.125%. CitiMortgage (Citi) loans may go to 0.0625%. Anyone may buy down the interest rate. The only questions are with regard to how far an individual may buy it down as the law sets certain limits regarding how much the buyer or seller may contribute. See below for the two NACA interest rate buy-down options.
- NACA Interest Rate Buy Down
- The Home Ownership Equity Protection Act (HOEPA) Limitations
- Participating Lender Grants
- NACA Interest Rate Buy Down:
- One point (1% of the loan amount) reduces the borrower’s interest rate by:
- 0.25% for a 30-year loan.
- 0.50% for a 15-year loan.
- Example: Loan amount is $120,000. Interest rate for the day of application is 4%
- One point = $1,200.
- $1,200 to interest rate buy-down gets to a new rate of 3.75% for a 30 year loan. 3.50% for a 15 year loan;
- Two points = $2,400.
- $2,400 to interest rate buy-down gets to a new rate of 3.5% for the 30 and 3.0% for the 15 year loan;
- Three points = $3600 and so on.
- $3,600 to interest rate buy-down gets a new rate of 3.25% for the 30 and 2.5% for the 15 year loan, and so on.
- One point = $1,200.
- The Home Ownership Equity Protection Act (HOEPA):
- HOEPA limits the total points and fees which can be contributed by the buyer to 7% of the loan amount (7 points) total.
- Points and fees limited to 7% for a NACA loan includes:
- Interest rate buy down paid by the Member. Included are third-party contributions to the Member, i.e. grants and gifts paid to interest rate buy down on the Member’s behalf.
- Note: Seller contributions to reduce interest rate are not included in the 7% percent limit. However, the seller is limited to contributing 10 points towards interest rate reduction (2.5% or 5% off of the interest rate).
- Note: There is no limit to the amount that a NACA Member can contribute to reduce the loan amount (down payment, principal reduction). After 7% of the loan amount goes to interest rate reduction, the Member’s contribution will reduce the loan amount.
- NACA Program Lender Grant
Low and moderate income Members qualify for a Lender Grant thus the interest rate buy down is not limited. Low and moderate income for purposes of the Lender Grant within the NACA program is defined as 100% or below the Metropolitan Statistical Area (MSA) median income for the area the Member purchases as documented by the Federal Financial Institutions Examinations Council (FFIEC).
Note: The income used in determining lender grant eligibility is all income included on the bank application.
- Bank of America Lender Grant Formula:
- 7% of the loan amount minus $3,000 (loan origination paid by the lender) minus the HAND fee (3% of the amount held for repairs) equals the total maximum allowable Member contribution to interest rate buy down
- For members that qualify for the grant, any additional funds are applied to principal reduction and the lender will match the amount in interest rate buy down
- The interest rate buy down are available in increments of .125% (half points) to a final interest rate of .125%
- CitiMortgage Lender Grant Formula:
- 7% of the loan amount minus $500 HAND fee when funds are held to complete repairs after closing equals the total amount of Member funds to interest rate buy down
- For members that qualify for the grant additional funds will be diverted to principal reduction and the lender will match the funds in interest rate buy down
- The interest rate can be bought down in increments of .0625% (quarter points/one-eighth points) to a final interest rate of .0625%
Example for Bank of America
The Member has a contract to purchase a house for $100,000. The starting interest rate is 4%. There is no escrow for repairs.
The Member wants to put $8,000 to interest rate buy down on a 30-year loan and is at 75% of the median income. $8,000 buys the rate from 4% to 2%
- The maximum contribution to points is 7% or $7,000.
- For the 30-year loan, four points ($4000) from the Member can go to interest rate reduction $7,000 – $4000 = $3000 left over
- From the initial $8000 (eight points) $4,000 (four points) of the Members money will go to interest rate buy down, and the other $3000 (left over) + $1000 (eighth point) for a total of $4000 will go to principal reduction, creating a new loan amount of $96,000 rather than $100,000.
- The lender will contribute a matching $4000 toward interest rate reduction and offer the final interest rate of 2%.
If in the same example, the Member was over 100% of the median income, the same $8000 would result in a loan amount of $96,000 but no lender grant match to reduce the interest rate so the final interest rate is 3.0%.
The same scenario for a 15 year loan, four points ($4,000) of the Members money will go to interest rate buy down and the other four points ($4000) goes toward principal reduction creating a new loan amount of $96,000 rather than $100,000. The lender contributes $3750 towards interest rate reduction needed to offer the final interest rate of 0.125%.
If in the same example, the Member was over 100% of the median income, the same $8000 would again result in a loan amount of $96,000 but no lender grant match to reduce the interest rate so the final interest rate is 2.0%.
Example for CitiMortgage
The Member has a contract to purchase a house for $100,000. The starting interest rate is 4%. There is no escrow for repairs.
The Member wants to put $8,000 to interest rate buy down on a 30-year loan and is at 75% of the median income. $8,000 buys the rate from 4% to 2%
- The maximum contribution to points is 7% or $7,000.
- For the 30-year loan, seven points ($7,000) from the Member can go to interest rate reduction.
- Of the initial $8000 (eight points), $7000 (seven points) of the Members money will go to interest rate buy-down, and the eighth point ($1,000) goes to principal reduction, creating a new loan amount of $99,000 rather than $100,000.
- The lender will contributes a matching $1000 toward interest rate reduction and offer the final interest rate of 2%.
If in the same example, the Member was over 100% of the median income, the same $8000 would result in a loan amount of $99,000 but no lender grant match to further reduce the interest rate so the final interest rate is 2.25%.
The same scenario for a 15 year loan, seven points ($7,000) from the Member will go to interest rate buy down and the eighth point ($1,000) goes toward principal reduction, creating a new loan amount of $99,000 rather than 100,000. The lender contributes $875 toward interest rate reduction needed to offer the final interest rate of 0.0625%.
If in the same example, the Member was over 100% of the median income, the same $8000 would result in a loan amount of $99,000 but no lender grant match to further reduce the interest rate so the final interest rate is 0.50%.
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