Author Topic: The 0% Mortgage Loan  (Read 5216 times)

bengbark

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The 0% Mortgage Loan
« on: October 18, 2014, 03:54:52 PM »
A realtor friend turned me on to NACA @ naca.com for the best deal for mortgages (other than paying cash for them). NACA is a home advocacy nonprofit group that offer rates below average and requires no down payment or closing costs. In return, you volunteer at an event 5/year for 10+ years? which I think is just a codeword for lobbying/yelling in front of some fancy bank or something. Restrictions apply: 30 year loan length, For first time home buyers and/or non-property owners, in select cities; there is a home price limit BUT no income limit.

Here's the really interesting part. Every 1% of the price of the house you pay for decreases the percentage rate by 0.25%. So right now, if you do 15%, you go from a 3.75% interest rate to a 0% interest rate. I think it works like points at closing so it doesn't decrease the principal of the house like a down payment. (Go to NACA.com and click on mortgage calculator on the bottom left to play around with it).

From what I've heard there is a lengthy vetting process, like 6 months to be on a safe side; and a mandatory 4 hour class to get started.

Does anyone have any experience with NACA? Advice, concerns, other/better ways to buy a house?

One Day

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Re: The 0% Mortgage Loan
« Reply #1 on: October 19, 2014, 07:41:12 AM »
We bought our (current, first) house through NACA in spring 2009. It is legit but a huge, huge pain.

The good:

1. We bought our rate down to 1.625%. So it does not make sense to ever pay extra to pay it off early. We can use our money in other ways.

2. Having such a low rate means our monthly payment is low, so we were comfortable with our PITI. We live in a NE state with high property taxes.

The bad:

1. The paperwork hassle. Our NACA office frequently lost paperwork. What should have been one fax often meant sending three times.

2. You still have a version of PMI. It's an extra $50 monthly included in our PITI. It goes to NACA. I am not sure this ever goes away.

3. Repairs requirement: You are required to address every code violation and item the inspector identifies as needing repair within the next few years. For us, this added another $15k to the purchase price, even though an old gas furnace was the only thing remotely pressing. (Consequently, despite the low rate, it took a while to get the principal below the purchase price.) It also added lots of headaches. You have to get bids and arrange for the work to be done within the first month or so of closing, and go through NACA for contractor approval and payment.

If you are willing to put up with the bad parts, and can get your rate to zero, AND find a house in very good condition,  it might be worth it for you.

Cheddar Stacker

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Re: The 0% Mortgage Loan
« Reply #2 on: October 19, 2014, 09:06:26 AM »
Aren't you really just prepaying the interest though? If you buy a $100k house, pay 15%/$15k, but your mortgage still ends up being $100k with 0% interest, you are paying something like 4 years of interest up front. The present value of the cash might equal 10-15 years of interest on a regular mortgage.

Just another thing to consider when looking at the good and bad related to it.

One Day

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Re: The 0% Mortgage Loan
« Reply #3 on: October 19, 2014, 12:33:39 PM »
Right.

Financially, I am not sure it was the smartest move. To get the same monthly payment, maybe we should have tried to find a cheaper house and put that money toward a typical down payment. Or have tried to keep renting and invested all that cash.

 But in our market, this was pretty much the only house we liked and could afford at 2 times my salary (including the repair amount, which is added to the mortgage in NACA land).  (Our house is nothing extravagant - 1100 square feet, one bathroom, $148 k purchase price, mediocre school district. Our metro area is expensive, even to rent in.)

We maybe shouldn't have bought, but we wanted kids and husband wanted a yard for them. All suitable apartments at that time were much more than our PITI and also would have required a second car. (Public transit and bike infrastructure here are terrible.) There are lots of other parts to this story, and in retrospect I wish we would have done things differently...But this isn't a thread about that decision.  :)
« Last Edit: October 19, 2014, 05:59:41 PM by One Day »

One Day

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Re: The 0% Mortgage Loan
« Reply #4 on: October 19, 2014, 12:36:36 PM »
Oh, one more thing on NACA ' S terms:

They ask you to volunteer by speaking at an info event for prospective home buyers and to answer phones in their office occasionally.  They do not actively enforce that.

Cheddar Stacker

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Re: The 0% Mortgage Loan
« Reply #5 on: October 19, 2014, 06:34:40 PM »
I wasn't trying to second guess your decision, merely trying to understand the loan. And no need to defend your purchase to me. I'm sure you did what was best at the time, nothing wrong with that.

Based on the terms though, and saying it's kind of like points, and that the down payment doesn't reduce principal, it's not exactly a 0% loan. You are paying quite a bit of interest, it's just wearing a mask. I'm just trying to make sure bengbark has all the facts.

One Day

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Re: The 0% Mortgage Loan
« Reply #6 on: October 20, 2014, 12:51:29 AM »
Oh yes, I agree. It is useful basically only to get the PITI to a certain level, and psychologically because the mind (wrongly) thinks there is no/low interest. Not offended and sorry if it came off that way.

Cheddar Stacker

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Re: The 0% Mortgage Loan
« Reply #7 on: October 20, 2014, 08:24:23 AM »
Glad you weren't offended, no need to apologize either though. Most of us around here don't bite too hard.

How long until your "service requirements" end?

bengbark

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Re: The 0% Mortgage Loan
« Reply #8 on: October 21, 2014, 08:20:15 AM »
I'm not sure why, but the whole thought of having a no interest loan excites me to no end; but yeah, its like prepaying the interest. I'm not a financier so I'm not sure if going below the inflation rate makes sense?
 
And the process does seem long. How long did it take you to go through the app process? It sounds like the repairs bit prolonged the closing? Did you get a realtor from NACA or your own?

Our realtor does not seem enthusiastic about it although I think it comes from the lack of familiarity. It does not look like its going to happen anyway because my wife has found the "perfect house" and we are pretty close to an offer after I talk to BB&T and other mortgage peeps. The house seems to be in near-perfect condition due to recent remodeling, but that remains to be seen.

One Day

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Re: The 0% Mortgage Loan
« Reply #9 on: October 21, 2014, 09:09:27 PM »
Um, we were so frustrated with the process we never did any service...It doesn't help that the NACA office is 40 minutes away. I think the "service requirement" ended at five years, but they do still occasionally email (several NACA home buyers at a time) asking for volunteers. Usually I am happy to volunteer for other orgs but most opportunities were for speaking at a workshop. I did not feel I could wholeheartedly endorse it.

Start to finish, I think it all took five or six months. The application part was not hugely onerous for us. I had excellent credit and a good job, though; the process might have been more demanding for someone with a different situation. The application process probably took a month, finding a house a few weeks, and inspection plus finding repair vendors put the closing maybe 1.5 to 2 months from when the original price was reached.

Finding vendors was the worst part. (It is not a good program if you are handy or want to be - I think they make you use vendors.) In theory, it's a good idea that will keep people from having unpleasant unexpected costs during their first few years of home ownership, but:
1. They were terrible at handling their end of the paperwork.
2. Unexpected costs always happen anyway. I don't think they require their buyers to have enough of a cash cushion for those (at least, five years ago they didn't).

Our landlord was our realtor. He had done NACA before, which was very helpful. Our NACA office also had a few recommended realtors who frequently worked with their homebuyers.

Sidenote: I don't think there were traditional closing costs for us through NACA, which was nice.

 

Wow, a phone plan for fifteen bucks!