Introduction

Here at T’s American Dream, my goal is to provide you with the best tools and resources available to help you achieve the American Dream with me. In the previous article, we took a deep dive into the features and benefits of SoFi Bank which I believe is a fantastic tool to help get your money in order to achieve your financial goals. One of those goals, I’d assume, is purchasing your first home. Continuing on with this theme, the tool that we’ll be discussing today is possibly the most important to buy a home, and that is the mortgage. More specifically, we’ll be discussing NACA’s America’s Best Mortgage, which I believe is a far better first-time homebuyer program compared to other options. Why do I believe this? Well, in order to buy a home, you have to save up money. The game-changing difference between NACA and other mortgages is NACA allows you to keep all of that money you saved up to buy your house while other mortgages require that you spend that money on down payments, closing costs, and various other significant expenses. How is this possible? Well, keep reading and we’ll go deeper into it.

What Is NACA?

The first thing to note is that banks issue mortgages, and those banks control the underwriting process to determine who qualifies for their mortgages. NACA (Neighborhood Assistance Corporation of America) is not a bank, and therefore NACA does not issue mortgages. However, NACA is a non-profit organization and housing advocacy group that has been fighting to eliminate the most difficult barriers to homeownership that many people face. As a result of 30+ years of advocacy, NACA secured transformative partnerships with mortgage lenders such as Bank of America to offer NACA’s America’s Best Mortgage. So while lenders such as Bank of America issue the actual mortgage, NACA manually underwrites their mortgages which significantly reimagines how a person qualifies for this mortgage. Traditionally these qualifications have been based on criteria such as credit score, down payment amount, and income. NACA, on the other hand, created a financial counseling program where a person must show certain positive money-management habits for 3-6 months to be qualified for their mortgage. These habits include creating a budget (and proving with bank statements that you can stick to this budget), adding to your savings account every month, paying all of your bills on time, and more. In their 30+ years of service, NACA has closed on over 75,000 mortgages (with over 90% of homeowners being people of color) and has a foreclosure rate of only 0.00012%. Bravo NACA, bravo.

Fun fact: the term “predatory lending” was coined by NACA back in 1991 when NACA went after financial institutions that targeted minority homeowners with dishonest “home improvement” companies.

Complaints with Traditional Mortgages

Traditional mortgages have been the go-to option for homebuyers for decades, but they have some serious drawbacks. One of the most significant barriers is coming up with a down payment. Most lenders require a down payment of at least 3.5% to 20% of the home’s purchase price. For a basic $300,000 starter home, that down payment could amount to anywhere from $10,500 to $60,000. For many first-time homebuyers, coming up with that much cash can be a significant challenge, especially if they are already struggling with debt or other financial obligations. When you think about it, down payments make little sense. Why is someone required to put up a significant amount of money if they are borrowing money?

Closing costs are another significant expense associated with traditional mortgages. These costs can include fees for the appraisal, title search, credit report, and other costs associated with the home-buying process. On average, closing costs alone can add up to 2% to 5% of the home’s purchase price (or an additional $6,000 to $15,000 added to the cost of a $300,000 starter home), which can be another significant financial burden for many homebuyers.

Another barrier to obtaining an affordable traditional mortgage relates to your credit score. Most traditional lenders require a credit score of at least 620 or above to qualify for a mortgage with a 3.5% down payment. For many Americans, this can be one of the significant barriers to homeownership, as they may have a low credit score due to financial illiteracy, past financial difficulties, or lack of credit history. While having a credit score on the lower end of this range may not prevent someone from qualifying for a mortgage, it will seriously impact their interest rate (making their mortgage payments much more expensive each month) or require a significantly larger down payment.

Lastly, other mortgages usually require mortgage insurance, or PMI for conventional mortgages or Upfront Mortgage Insurance Premium for FHA mortgages, which protects the lender in case of default. It’s another expense added to your mortgage, making your monthly payment even more expensive. Depending on the mortgage you get, the mortgage insurances are either required until you have 20% of your home paid off, at which you will have to refinance your mortgage to eliminate this expense, or may even last the entire term of the mortgage. So if your lender allows you to supply a lower down payment, you’ll likely have to pay mortgage insurance for quite a few years. This insurance provides no benefit to the homeowner and is an added cost that many homeowners are eager to get rid of.

Benefits of the NACA Mortgage

America’s Best Mortgage by NACA offers numerous benefits which distinguishes it from other first-time homebuyer options. Part of their success with having a 0.00012% foreclosure rate is the fact that NACA emphasizes issuing affordable mortgages. Remember, NACA is a non-profit organization. They are not doing this to make record profits, they are here to solve a problem. Getting a mortgage from unaffordable to affordable requires eliminating some expenses that other mortgage lenders require. Three of the most significant expenses which are eliminated by NACA are the down payment, the closing costs, and the requirement for mortgage insurance. Yes, homebuyers going through NACA can avoid having to save up a large sum of money for their down payment, avoid paying closing costs, and avoid paying mortgage insurance each month, which makes buying a home significantly more affordable.

Additionally, NACA does not take credit scores into account when determining eligibility and mortgage amounts. Instead, the organization focuses on your payment history over the past two years and your ability to pay your monthly obligations as agreed. A NACA workshop is the first time I’ve ever heard “If you can pay your rent, you can pay your mortgage”. This is another significant advantage for potential homebuyers with less-than-perfect credit history. Other mortgage options use credit scores to determine your interest rate and down payment amount. However, NACA offers everybody the same below-market interest rate (which changes daily and is always available to see on their website). Their interest rate is always going to be below the market average—usually 1-3% less than interest rates nationwide—which is another huge advantage to achieving an affordable monthly mortgage payment. So because NACA does not require a down payment and offers the same mortgage rates to everybody, the organization does not have a reason to rely on a credit score. America’s Best Mortgage by NACA is designed to provide an affordable mortgage for each Member, regardless of their credit score or financial history.

The NACA homebuyer program is also a HUD-approved first-time homebuyer program, which means that by completing this program you can qualify for additional grants and forgivable loans to go towards the purchase of your home. Many down payment assistance grants and first-time homebuyer grants can still be applied to your NACA mortgage. However, since NACA does not require a down payment, these funds can instead be used to “buy down” your interest rate, making your already-low interest rate even lower and thus increasing the maximum mortgage amount you can qualify for. You can also choose to instead use these funds to reduce the overall total purchase price of your home. The choice is yours and it’s best to discuss these options with your NACA mortgage counselor and your family. More information about buying down your interest rate with NACA can be found here.

For households with a Section 8 Housing Choice Voucher, you can get a NACA mortgage as well as long as your housing agency allows your Housing Choice Voucher to be used for home ownership. NACA has a special 20-year mortgage for you where the funds that would typically go towards paying your landlord will instead go towards paying your own mortgage.

Types of Homes

The NACA program allows homebuyers to purchase a wide variety of properties, regardless if they are already built or new construction. These include single-family homes, as well as condos, manufactured homes, mobile homes, and even multi-family homes and mixed-use properties. They even require that you take their free course teaching you how to be a law-abiding landlord in the event that you want to purchase a property that could be rented out for income, such as a multi-family property. This can be a significant advantage for people who may be looking to purchase an income-producing property or who may want to live in a building with commercial space.

If you have your eye on the perfect house in the perfect neighborhood, but it needs a bit of rehabilitation, NACA’s HAND (House and Neighborhood Development) Department is there to help. HAND can bundle rehab costs into your total mortgage amount. This allows a homebuyer to find a fixer-upper house and have the funds available for repairs and renovations so that they can happily live in it.

It doesn’t stop there. In line with NACA’s mission of making home ownership affordable, NACA has stepped beyond just issuing affordable mortgages. NACA recently opened its first factory in which they build affordable, high-quality, and energy-efficient one- and two-story modular homes to be installed on plots of land, for a total purchase price of $120,000–$150,000 (and a monthly mortgage amount of $750–$1,150). This is a huge saving, considering that in many states, prices for the average starter home can begin at around $300,000. By cutting that purchase price in half, and offering affordable mortgages, NACA is making it easier and more affordable than ever to achieve the American Dream.

How the NACA Home Buying Program Works

The NACA home loan program requires a mindset shift and a bit more preparation than traditional mortgages, as it is quite a bit different than obtaining a traditional mortgage. However, as you see above, the benefits are surely worth it. The process begins with attending a free homebuyer workshop, which covers topics such as the history and mission of this non-profit organization, the importance of budgeting, payment history considerations, how to keep your documents updated, success stories, and generally what you can expect as you matriculate through the program.

After the workshop, you will receive your NACA ID, which allows you to create an account in the online Member Portal. The Member Portal is where you go to provide important household and financial information and upload the necessary documents. Once you have completed this, you can then schedule an appointment with a NACA counselor who will go over your file with you during a consultation and develop an Action Plan. An Action Plan is a list of actionable items that you need to do to become qualified for America’s Best Mortgage. This plan will be different for different households because everybody’s financial situation and history is different, but it’ll generally consist of providing various documents related to your income, developing a budget, pinpointing how much money you’ll need to save up, explaining issues from your past payment history, and determining how much of a mortgage you can qualify for.

Let’s touch on spending patterns for a moment. NACA stresses the importance of budgeting. So much so, that it offers a really innovative budgeting tool in their Member Portal, where you securely link up your bank accounts, categorize your transactions, and they automatically get calculated in your budget. This way Members don’t have to estimate how much they’re spending on things each month or how much they want to spend each month—you have real-time spending data from your financial accounts to show exactly where your money is going. Now, NACA does not care how you spend your money. What they care about is whatever you spend your money on, is in your budget? And at the end of the month, after all income and expenses are taken into account, does your household have a surplus of at least $200 each month? And all of this can be revealed with the Budgeting tools they provide in the Member Portal. The reason is that homeowners are often hit with surprise expenses and repairs. The difference between renting an apartment and owning your home is when a repair needs to be made, you can’t just call the landlord to come fix it—you are the landlord! NACA wants to be proactive about these surprises and wants each household to develop a habit of saving money so that when an emergency expense does arise, you can handle it along with your other monthly payment obligations, without throwing your monthly budget off track.

Now let’s touch on the Payment Shock savings pattern, which is personally my favorite part of qualifying for a NACA mortgage. Payment Shock is the way you demonstrate that you can afford the mortgage you are going for. After your meeting with your NACA counselor, they will look at your income, debt, and budget and will let you know how much of a mortgage you can afford. For example, let’s say they determine you can comfortably afford a mortgage of $1,500 per month. While you are going through the NACA program, you likely already paying rent. Let’s say your current rent is $1,200. Your Payment Shock is the difference between your current rent payments and your expected mortgage payments ($300 in this example). What NACA wants you to do is to act like you are paying your mortgage every month while you are going through their program. So when you pay your $1,200 rent, you will also transfer your $300 Payment Shock into your savings account and mentally act and live like you paid a $1,500 mortgage. This is essentially a dress rehearsal for having the mortgage you want and how they want to get you comfortable with the $1,500 mortgage payment. The Payment Shock will go to a savings account and you can not spend this money. Mentally, you are supposed to be treating this money as if it was spent towards your mortgage and you no longer have it available. This is why creating an accurate budget that you can stick to is a vital piece of the NACA program. You should not have to touch this money while going through this program, the same way you would not be able to touch this money if it was paid towards your mortgage every month. The beauty about this is two-fold: not only are you on training wheels preparing for life with the mortgage payment you want, but once you close on your home, all of the Payment Shock money you saved during this entire time is still yours and you can then use it for whatever you want! It does not get spent on a down payment, or closing costs, or any other expenses related to obtaining your home. This is purely money you saved up to be used as you see fit once you complete the program. This strategy puts you in a great financial position after closing on your home instead of potentially being in a “house-rich and cash-poor” situation.

Conclusion

In conclusion, the NACA program is clearly a game-changer for those seeking to purchase a home. By eliminating barriers such as credit score requirements, down payment, and exorbitant fees that contribute to unaffordable mortgages, NACA has made the dream of homeownership accessible to many who previously believed it to be impossible. Additionally, NACA’s below-market mortgage rates with no mortgage insurance and Payment Shock program are designed to help save homebuyers money and increase their personal savings. With the NACA program, the American Dream of homeownership is attainable for those who are willing to put in the work and complete their financial counseling program. So if you are ready to take the next step towards homeownership, sign up to attend NACA’s Home Buyer Workshop yourself, get all of your questions answered, and take action!