NACA Requirements and Loan Process
The NACA Workshop is just the first step in a several-month counseling and qualification process aimed at helping prospective homeowners financially prepare for owning a home. Next comes an intake session with a NACA counselor. A NACA mortgage consultant continues to guide members through the qualification process, an application that includes a review of payment history, debt obligations, savings, documented income and budgeting. Counselors also conduct an affordability analysis, which determines how much house a borrower can honestly afford. Borrowers are not required to make a down payment, and interest rates are guaranteed to be below 4 percent [source Appelbaum].
NACA does not, however, consider credit scores as part of the application process. When it comes to credit scores, the bigger the better; 850 is a perfect credit score, and anything above 700 is a good credit rating. Most Americans score between 600 and 750, but NACA members typically score lower [source: Experian]. In 2009, it was reported that as many as 65 percent of NACA homeowners were high-risk borrowers, with credit scores below 620. Almost 50 percent of borrowers had poor credit, with scores lower than 580 [sources: Hogberg, Lamb]. And that's a problem for big-name banks that approve loans for homebuyers with good credit scores only. Before the housing market crash, big-name lenders wooed poor-credit borrowers with unfair subprime loans, but post-bust, the Federal Housing Finance Agency (FHFA) introduced financial reform laws under the Housing and Economic Recovery Act of 2008 (HERA) in an effort to slow down the number of foreclosures and mortgages in default.
Once members are NACA qualified, they attend a Purchase Workshop, where NACA counselors review how to search for a property (and what to do if it's a fixer-upper and needs rehab), in addition to how to submit a mortgage application or begin using MAP. Members may use an NACA buyer's agent to help with the search, or they can bring in their own NACA-approved real estate agent. And when the right home is found, this agent will negotiate the purchase price and the terms of the Purchase and Sale Agreement.
Part of the mortgage approval process includes approval for NACA Credit Access. This step verifies the member's financial situation hasn't changed and that the member continues to follow the requirements before NACA will approve the loan application. NACA, certified by the U.S. Department of Housing and Urban Development (HUD), functions as a middleman between borrower and lender [source: Andriotis].
Properties needing rehab are key to NACA's mission of stabilizing neighborhoods, and under its Home and Neighborhood Development (HAND) program, the agency works with members to make those repairs and renovations affordable either by having them completed by the seller or rolled into the mortgage.
Arguably one of the best things about buying a home through NACA is the below-market interest rate, which members must lock in before they purchase their home. Before submitting the mortgage application, NACA members can further reduce the interest rate by putting additional funds down, called NACA Buy-Down. For each 1 percent of the mortgage that's paid up front, the member receives a 0.25 percent reduction in the interest rate [source: NACA]. There's no limit — you could buy down the interest to zero percent.
Finally, a NACA counselor submits the new mortgage to the lender; the agency processes and underwrites mortgages and serves as the mortgage broker. The borrower secures the homeowner's insurance, and then it's time for closing. At closing, NACA members are responsible for escrow costs and pre-paid expenses, such as pre-paid insurance.
After closing, NACA members may take advantage of MAP's free counseling and financial assistance as needed for the life of the loan, including budgeting, forbearance and, when the time comes, home sale.
Members participating in the Home Save Process, NACA's foreclosure-prevention program, first determine an affordable solution based on the member's financial circumstance, with a MAP counselor; NACA itself doesn't restructure a member's loan, but instead submits the request and supporting documentation to the lender and then handles the negotiations.