Mortgage with $0 down, $0 PMI, $0 closing costs, and a 30-year 4.125% rate

One thing I haven’t seen mentioned lately is that there is an avenue to get a house with ideal terms: $0 PMI, 0% down, $0 closing costs, and a rate below what you would get with a 850 FICO from a conventional bank. There is a nonprofit organization called the Neighborhood Assistance Corporation of America (NACA, www.naca.com) that does this. You can put down more than 0% down if you want – it isn’t required, but given how some people here are debt averse I thought I’d point that out. The mortgage will still have better terms than you could get from any bank.

What is the catch?

A few things to be aware of:

  1. You will be subject to underwriting standards far more rigorous than any conventional mortgage. The qualification process will take 2-3 months, maybe more. NACA doesn’t want to lend to anyone who gets into a house they can’t afford. Be prepared for the financial equivalent of a colonoscopy.
  2. You also cannot get a NACA mortgage for a investment property, and technically you aren’t supposed to later rent the property (it should be your primary residence – but they have no way of checking this).
  3. You cannot get a HELOC on the property later, NACA considers them predatory (you could refinance to get a HELOC later if you wanted to). However, NACA will lend for re-models or “wish list” items (marble countertops, etc. – things you normally use a HELOC for) up front.
  4. If you are in a “hot market,” you should be aware that many seller’s agent’s don’t like dealing with NACA (because NACA has more stringent requirements than traditional banks). That is why you don’t mention NACA to whoever you are buying a house from until after your offer is accepted. You include in your offer a pre-approval from a traditional bank. Once your offer is accepted, go with NACA – you can’t be stopped from using whatever financing you want.

Even given the catches – given the terms – I think its 100% worth it.

No really, there has to be other catches – those aren’t bad. What is it? How do they make money?

Really, there isn’t. You just have to jump through their underwriting hoops. NACA is a nonprofit. They don’t make any money from this, which is why they don’t advertise it. The mortgages they underwrite are funded/serviced by either Bank of America or Citibank.

I thought programs like this were means tested (e.g. must below $X income)?

This is not a program which is means tested. You could be a millionaire and get a mortgage through NACA. People who are higher incomes are “non-targeted members” who are subject to purchase price caps, but the caps are very high unless you live in NYC or another ultra-high cost of living metro. For example, in my medium cost of living area the purchase price cap is $400,000 and you can get a mansion for that price.

Is this one of those first-time buyer mortgage programs?

Nope! You could be on your 3rd mortgage, it doesn’t matter. As long as you are selling one house and moving into another one that is your primary residence, you qualify.

 

 

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