What Is a NACA Mortgage?

A NACA mortgage is a no-down-payment, no-closing-cost home loan you can get through a nonprofit called the Neighborhood Assistance Corporation of America (NACA). The NACA homebuying program helps buyers who are typically challenged by traditional financing to access affordable loans with favorable terms.

Additional features of a NACA mortgage include no mortgage insurance and lower-than-average interest rates. To access a NACA mortgage, you’ll need to meet certain requirements, including income limits and participation in NACA events. Here’s how a NACA mortgage could help you achieve your dream of homeownership.

What is the NACA homebuying program?

The NACA purchase program connects low- and moderate-income borrowers to affordable home loans and housing education. To qualify for a mortgage loan through the NACA program, borrowers must meet specific eligibility requirements, follow a detailed application process and become NACA members.

NACA home loans feature the following benefits:

→ Below-market interest rates

→ No down payment requirement

→ No fees

→ No closing costs

→ 15-, 20- or 30-year fixed-rate terms

→ No private mortgage insurance (PMI)

→ No credit score minimum

Because the primary goal of the NACA program is to expand access to homeownership, NACA interest rates are below market. As of Jan. 15, 2025, NACA interest rates for low- to moderate-income borrowers were 6% for a 30-year fixed-rate mortgage, 5.5% for a 20-year fixed-rate loan and 5.375% for a 15-year fixed-rate mortgage. That’s significantly lower than the national averages — 6.93% for a 30-year fixed-rate loan and 6.14% for a 15-year fixed-rate loan.

Higher-income applicants (those whose income is at or above the median income where they’re purchasing) pay slightly higher rates: 7% for a 30-year loan, 6.5% for a 20-year loan and 6.375% for a 15-year mortgage. NACA program buyers can also buy down their interest rate, a technique that allows you to put more money down at closing in exchange for receiving a lower interest rate over the life of the loan (and if the seller contributes to the buy-down, that can bring the rate as low as 0.125%).

How does NACA work?

NACA is a U.S. Department of Housing and Urban Development (HUD)-certified nonprofit organization. Its mission is to offer affordable homeownership to low- and moderate-income communities and borrowers, who are more likely to be victims of predatory lending or shut out of home financing altogether.

NACA isn’t a mortgage lender — rather, it prepares its members for homeownership through its extensive counseling and application process, partnering with banks to provide the funding. Bank of America has worked with the NACA mortgage program since 1994 and is the program’s primary lender.

Borrowers who purchase a home through the NACA program become members of the organization. Membership requirements include paying annual dues of $25 and participating in advocacy and other events.

NACA program requirements: How to qualify

Borrowers must meet the following NACA program requirements.

Income limits

The NACA program doesn’t have specific income restrictions — however, because it aims to reach low- and moderate-income homebuyers and communities, it distinguishes between priority and nonpriority members.

• Priority members: These borrowers have household incomes that are less than the median family income where they’re purchasing, or borrowers of any income who are buying a home in a lower-income area. Priority members receive the lowest NACA interest rates.
• Nonpriority members: These borrowers have household incomes equal to or more than the median family income where they’re purchasing a home, and who won’t be buying a home in a lower-income area. Nonpriority members receive slightly higher interest rates.

Credit score

Unlike many loan programs, the NACA homebuying program doesn’t have a minimum credit score.

Instead of credit scores, NACA uses what it calls “character-based lending.” In a unique effort to level the playing field, NACA only looks at your history of payments they consider to be in your control. This strategy allows NACA to exclude payments, such as those for unaffordable medical bills and payday or otherwise predatory loans.

NACA evaluates each applicant’s creditworthiness on an individual basis, looking at the whole financial picture.

Debt-to-income ratio

The NACA program uses debt-to-income (DTI) ratios to ensure borrowers have affordable mortgage payments in proportion to their income. The program uses two DTI ratios:

• Housing ratio: Borrowers’ mortgage payments may not exceed 33% of their gross income (and can go up to 35% in high-cost-of-living areas).
• Debt ratio: Borrowers’ total debt payments, including their mortgage, may not exceed 40% of their gross income (and can rise to 43% in high-cost areas).

Loan limits

NACA home price limits aren’t the same as national conforming loan limits, the maximum allowable mortgage amounts according to rules set by the Federal Housing Finance Agency (FHFA). In some cases, NACA purchase price limits may be lower than the current conforming loan limits.

For 2025, the NACA program’s maximum purchase price for a single-family home, including repair escrow funds (if applicable), is $548,250 in most areas and $822,375 in high-cost areas. NACA allows higher loan amounts for multifamily properties.

Eligible properties

The following types of properties are eligible for a NACA mortgage:

→ Single-family homes

→ Multifamily homes with two to four units

→ Condos

→ Co-ops

→ Townhomes

→ Mixed-use properties

→ Manufactured and modular homes

The following property types are not eligible:

→ Log homes

→ Empty land

→ Operating farms and ranches

→ Single-wide mobile homes

→ Single-resident or single-room occupancy properties

Cannot own other homes at the time of purchase

NACA program members and anyone who will live in their household can’t own any other property at the time of purchase.

Minimum required funds

Although you won’t have to save up for a down payment or closing costs, a NACA mortgage does require that you have a certain amount of cash saved. You’ll need enough funds to cover expenses like:

• Your earnest money deposit (a security deposit that shows you’re serious about buying)
• A home inspection
• Upfront property insurance and taxes
• One to six months of mortgage reserves (funds set aside to ensure you can make your mortgage payments, even if you hit financial speedbumps)

If your new monthly mortgage payment will be more than you currently pay in rent, you’ll also need to show that you can afford your future mortgage payment. NACA allows you to do this by demonstrating that you’ve saved the difference between your monthly rent and your future mortgage payment each month for three to six months.

Occupancy requirement

Borrowers must live in the property as long as they have a NACA mortgage.

NACA membership and participation

Borrowers must become NACA members and follow membership guidelines. These include paying an annual $25 fee and attending five NACA housing advocacy events per year, including one before qualifying for NACA and one before closing on the home.

The yearly dues help fund NACA’s advocacy efforts. Borrowers must maintain membership as long as they have a NACA mortgage.

Steps to get a NACA home mortgage

Borrowers interested in applying for the NACA mortgage program must follow the multistep application process.

1. Attend a NACA homebuyer workshop

To begin, borrowers take a four-hour NACA homebuying workshop that explains NACA loan requirements, program benefits and the homebuying process. The workshop is free and open to anyone interested in the NACA program.

2. Meet with a housing counselor

After attending the NACA workshop, applicants meet with a housing counselor. To prepare for the appointment, borrowers upload the requested documents and information to their online account.

During the meeting, the NACA counselor will review your income and expenses, and you’ll work together to determine an affordable monthly housing payment and overall budget. You’ll also receive an action plan with next steps. Borrowers may need to meet with their counselor multiple times.

3. Become NACA-qualified

NACA program applicants must be NACA-qualified to move forward in the application process. Similar to a mortgage preapproval, becoming NACA-qualified means that you meet the preliminary criteria for the program and are likely to be approved for a NACA mortgage. You’ll need to attend a property workshop before getting NACA-qualified, which covers information about property types and repair issues that may arise.

Your counselor will then request documents including, but not limited to:

→ 30 days of pay stubs (or 12 months of bank statements if self-employed)

→ Two years of tax returns

→ Two years of W-2s

→ 90 days of bank statements for all accounts

Depending on your situation, becoming NACA-qualified can take anywhere from one counseling session to several months. However, you should be qualified within six months unless your finances are especially complex. Once approved, the qualification is valid for six months.

4. Attend a NACA purchase workshop and search for a home

After becoming qualified, you’ll attend a NACA purchase workshop. This workshop lasts for an hour and a half and explains the process of searching for a home, submitting your mortgage application and getting help post-purchase.

After completing the purchase workshop, you’ll receive the NACA qualification form, find a real estate agent and officially begin home shopping. Borrowers can use in-house real estate agents or any agent of their choice.

5. Get a property-specific letter

Once you’ve found a property, you’ll contact your housing counselor to receive a property-specific letter, which verifies that you’re qualified to purchase the home. You’ll then negotiate the home price and other terms of the purchase and sale agreement.

6. Get a home inspection

Once the purchase and sale agreement is finalized, you’ll get the home inspected by a NACA-approved home and pest inspector. The inspection process ensures that the home is safe and meets NACA requirements. In some cases, NACA’s Home and Neighborhood Development (HAND) department will work with you to manage necessary repairs.

7. Meet with your mortgage consultant and submit documents

Next, you’ll meet with your mortgage consultant, who’ll verify you’re still NACA-qualified and approve you for NACA credit access. This step allows your housing counselor to submit your complete NACA mortgage application to a participating lender for final approval.

You’ll need to provide the following during this step:

→ An executed purchase and sale contract

→ 30 days of pay stubs (or 12 months of bank statements if self-employed)

→ 90 days of bank statements for all accounts

→ Proof of on-time rental payments since NACA qualification

8. Close on your home

After your loan goes through underwriting, the next step is to close on the home. The closing process finalizes the purchase and makes you the legal owner of the property. With a NACA mortgage, the lender covers the closing costs — however, you’ll still need to have the funds for prepaid items, such as real estate taxes and homeowners insurance premiums.

Before closing, you’ll do a final walkthrough of the property to ensure the condition is as agreed. At the closing, you (and any co-borrowers) will meet with the home seller, the seller’s attorney or agent, your attorney, your real estate agent and the lender’s attorney or settlement agent to sign the mortgage documents and finalize the deal. Once the closing is complete, you’ll be the new owner of the property and receive the keys.

9. Use the Membership Assistance Program (MAP)

After closing, members have access to assistance and benefits as part of the organization’s post-purchase program. Membership Assistance Program (MAP) benefits include:

• Budgeting and other homeownership counseling
• Loan modification in the case of changed financial circumstances
• Temporary forbearance options
• Financial assistance for approved homeowners
• Real estate services when selling your home
• Help with handling issues with your lender
• Other homeowner and neighborhood services and advocacy

Pros and cons of NACA

While NACA home loans provide prospective homeowners with many advantages compared to other forms of financing, borrowers should consider all aspects of the NACA program.

Alternatives to the NACA program

In addition to NACA loans, borrowers looking for mortgages with flexible qualifications and terms have other options. The following programs have low or no minimum down payment or provide home purchase assistance.

FHA loans

Loans insured by the Federal Housing Administration (FHA) are similar to NACA mortgages, as they both have flexible credit requirements. However, they carry fees and have a minimum down payment. Borrowers can qualify for FHA loans with credit scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment. FHA loan borrowers must pay an upfront mortgage insurance premium and ongoing mortgage insurance.

USDA loans

Like NACA loans, mortgages guaranteed by the U.S. Department of Agriculture (USDA) have no down payment requirement. However, borrowers must purchase a home in a designated rural area and meet the program’s income restrictions to qualify. And while USDA loans don’t have a minimum down payment requirement, many lenders will look for a credit score of 640 or higher.

VA loans

Loans insured by the U.S. Department of Veterans Affairs (VA) have no down payment requirement, income limits or geographic requirements, similar to the NACA program. To qualify, buyers must be active-duty service members, veterans or eligible spouses. Like NACA mortgages, VA loans don’t have a minimum credit score, though many lenders require a score of 620. VA borrowers pay an upfront funding fee and may have additional lender fees.

First-time homebuyer programs

Many state governments and housing authorities offer first-time homebuyer programs on the state or regional levels. Assistance varies by program, but they can typically include low-rate mortgages or down payment assistance.

In some cases, borrowers can combine multiple programs to maximize their buying power and lower the cost of homeownership considerably. First-time homebuyer programs are typically available to buyers who haven’t owned their primary residence in the past three years.

Down payment assistance programs

In addition to first-time homebuyer programs, state governments and local organizations offer down payment assistance. Borrowers may need to pair the aid with a first loan from the same program — in some instances, though, they may receive the help as a stand-alone program. Depending on the program, down payment assistance can come as a grant, a no-payment forgivable loan or a traditional second mortgage.