Mortgage Underwriting Criteria
Credit Scores are biased against low-to-moderate income borrowers and those locked out of affordable homeownership. The score is preferential towards homeowners and those in the established financial system. It is negative towards renters and people that rely on other sources of financing such as pay-day lenders.
In fact, credit scores are not necessary for NACA to determine eligibility for its mortgage. NACA utilizes the same data from the three major US credit bureaus that the credit score is based on to accurately determine readiness and affordability of homeownership with the Member. NACA Counselors work with Members to determine which payments were in their control which is a more accurate determination of one’s readiness for homeownership. This analysis provides important information to create an action plan for the Member to demonstrate his/her readiness for homeownership and work with the Member to his/her financial goals.
NACA is reinventing mortgage lending. NACA utilizes character based compensating factor lending based on each Member’s personal circumstances. While this was once the old-fashioned way of lending through local bank branches and relationships, NACA uses advance technology and focuses on Members who have been locked out of affordable homeownership. NACA’s underwriting recognizes that people do not fit into standard categories yet they are ready and able to be homeowners. NACA’s underwriting is so flexible that all Members who adheres to NACA’s requirements and program will have the opportunity to be a homeowner.
NACA focuses on each Member’s personal circumstances without consideration of credit score. To determine ones readiness for homeownership, a NACA Counselor reviews the Member’s combined credit report from all three credit bureaus to determine if they have made on-time payments over the past 24 months with a focus on the past 12 months for those payments within the Member’s control. The most important factor is the rental payment history, this being the best indicator of a Member’s responsibility in paying their mortgage payment on-time. NACA Counselors will not consider payments not under the Member’s control that are not a reflection of whether the Member is ready for homeownership. These include items such as medical bills, predatory loans and others.
NACA uses the Member’s affordable rental payment as the basis combined with a three- to six-month savings pattern to determine an affordable mortgage payment. This savings pattern demonstrates whether paying a higher mortgage payment will negatively impact a Member’s standard of living. This is to address Payment Shock which is the difference between the mortgage payment based on desired housing price less the current affordable rent. The three-to-six-month savings pattern must demonstrate that the Member can afford to pay the Payment Shock over the course of many years.
NACA works with Members to help them achieve an affordable mortgage payment that is not a burden but instead serves as a foundation for stability and an enhancement to their standard of living. The affordable mortgage payment is therefore limited by the Member’s income, which can be no greater than 31% of gross income (“Housing Ratio”) and 40% of total debts (“Debt Ratio”). In some high-priced markets where rents are a high proportion of one’s income, the Housing Ratio can go up to 33% and Debt Ratio up to 43%.
NACA underwrites the NACA Mortgage using character based compensating factor lending as opposed to Risk Based Lending which is the standard for the lending industry. Risk Based Lending utilizes credit score, Loan-to-Value and Debt-to-Income ratio to determine what homebuyers can access, which then determines the interest rate and associated mortgage payment.
NACA’s home buying process is not based on credit score. It is a character-based loan product. Therefore, even those with poor credit are encouraged to work with NACA, as they will receive comprehensive financial counseling and be put on a path to homeownership.
Unemployed Members cannot become NACA Qualified and apply for a mortgage through NACA while they are unemployed. Members who obtain stable verifiable employment and maintain it for at least a year and have a strong previous work history can access the NACA Mortgage.
Those who are unemployed or recently laid off can and should still attend a homebuyer workshop and get started with NACA’s counseling services. NACA will provide these Members with a comprehensive action plan that puts them on the best path to homeownership. This process should be started as soon as possible.
Those with student loans in default must rehab their student loan debt before NACA qualification.
Those with student loan debt can and should still attend a homebuyer workshop and get started with NACA’s counseling services. NACA will provide these Members with a comprehensive action plan that puts them on the best path to homeownership. This process should be started as soon as possible.
If the repossession happened more than two years ago it would not likely impact or delay NACA Qualification. However, liens and judgments must be resolved before NACA Qualification. Such Members can and should still attend a homebuyer workshop and get started with NACA’s counseling services. NACA will provide these members with a comprehensive action plan that puts them on the best path to homeownership.
Yes. Those Members who have filed Chapter 13 are eligible for NACA Qualification after discharge without a waiting period as long as they adhere to all other NACA Qualification requirements. Additionally, if Chapter 13 is dismissed, any liabilities within the last 24 months must be addressed with a proof of zero balance or an approved payment plan with on-time payment for twelve months.
Those Members who have filed Chapter 7 will not be eligible until 24 months after discharge. During that 24 months, Members must establish on-time payments on all accounts. After 24 months Members are eligible for NACA Qualification as long as they adhere to all other NACA Qualification requirements.
Those Members who work as contractors or other types of jobs that have gaps in employment can become NACA Qualified. As part of its qualification criteria NACA considers overall annual income.
NACA determines the Member’s affordable monthly mortgage payment that the Member will be qualified based on their rent. If a Member wants a payment greater than their rent he/she needs to save the additional amount for three to six months, which is considered their Payment Shock Savings. The affordable payment cannot exceed limiting factors which are debt ratios based on the Member’s gross income to their housing cost and overall debt liabilities.
These limiting factors are in place to ensure that the Member has an affordable mortgage payment that is not a burden but instead serves as a foundation for stability and an enhancement to their standard of living. The affordable mortgage payment is therefore limited by the Member’s income, his/her payment can be no greater than 31% of gross income (“Housing Ratio”) and his/her total monthly payments can be no greater than 40% (“Debt Ratio”). In some high-priced markets where rents are a high proportion of one’s income, the Housing Ratio can go up to 33% and Debt Ratio up to 43%.
NACA does not consider credit scores and instead focuses on the Member’s payments that he/she controls. This is fundamental to doing “Character Based Lending”.
Lack of “Control” includes a broad range of payments that do not reflect on the Member’s readiness for homeownership. This includes but is not limited to the following: unaffordable medical bills which is reflective of an unaffordable dysfunctional medical system; predatory loans such as pay-day loans; losses due to disasters; non-payment or late payment of rent due lack of property repairs, and other situations that are taken on a case-by-case basis by NACA.
The underwriter is NACA’s quality control. It is the NACA Counselor who underwrites each Member’s loan to determine if they are ready for homeownership and a payment they can afford.
When ready, each Member’s NACA Counselor submits the file to a NACA underwriter for NACA Qualification or Credit Access approval. The underwriter reviews the completed file and either approves or identifies those conditions that need to be addressed before moving forward. Once the loan is at the lender, the underwriter also works with the lender to address any income, credit or asset conditions.
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