The Road Less Traveled to the Right House

We live in a good housing market here in NC, where you can get nice affordable suburban homes for great prices. A few years ago when we first started looking to buy, our eyes where on a couple of sweet party shacks. Three floor townhomes with lower floor party rooms, mid floor social areas, and upper floor private bedrooms. The ones we looked at were from $220-$360K. Not bad at all.

Still, we started to notice lots of curious signs for “interest only” loans in the communities we looked at. Builders were aligned with mortgage companies to offer mortgages that would immediately put buyers at a disadvantage, having them pay no principle and only interest. These loans allowed buyers to get into larger and more expensive homes than they normally would be able to afford, but when the interest only portion of their loans expired trouble might ensue. Like adjustable rate mortgages, there was a time clock ticking on these loans. Buyers weren’t thinking that they wouldn’t be able to afford the adjusted loan payments down the road. Many thought they would enjoy their party shacks and sell them before the party ended — never anticipating what happened with our economy. When people started pointing fingers at the mortgage industry, minorities and the poor were seen as the catalyst for the housing crash. I sat and remembered all of the middle and upper class suburbanites (like myself) of all races, who were clambering after those party shacks, considering taking those risky loans and potentially defaulting on them.

The interest only loan was always odd to me, and being inquisitive I did my research on just what was at risk. During one of those days of reading, googling and listening to Clark Howard, the name of the national organization NACA (Neighborhood Assistance Corporation of America) came up. I went to their website and was intrigued. No deposit. No closing costs. An interest rate at least .25% lower than the prime? How could this be? I dug deeper in the site and I saw why NACA is such a great grass roots organization, but also why few take advantage of what it has to offer.

There are 2 big reasons why people aren’t flocking to an organization like NACA: convenience and status. Which is also likely to be the reason many are in debt and losing their houses in the first place.

People aren’t used to being examined for their choices. We go into Best Buy and 5 minutes later we have instant credit. Our credit reports don’t reflect and many creditors don’t care about hidden obligations, money spent eating out that can bust a budget, or gas, insurance, and maintenance spent on that $500 a month car. We don’t like to be told anything about this and we like to get what we want, when we want it. At least most of us do, and at least that’s the way it used to be before the crash.

NACA doesn’t care about convenience. They care about getting people in homes that they can afford, maintain, and keep. They’re not going to tell you what you want to hear, and they’re not going to give you what you should not have. They’re not going to respond to your impulses or needs for status.

The NACA website details the steps toward home ownership and they are as important as they are many. There are a few important points that you should know from the gate:

Workshop and Counseling-You will have to attend a NACA orientation workshop and come to regular appointments as your financial viability is monitored.

Purchase Price Maximum- Based on the area you live in, home purchase price maximums are set ( see website ). This is one barrier for many. Based on NACA’s evaluation of your income and obligations you will not get a home that is more than you can afford, but some can afford more than NACA maximums allow. If this applies to you, this is purely a personal choice to continue with NACA. However, I suggest that if you can afford more of a house, that you don’t buy it. Get a great house through NACA, and put the money you save into your future, your present, your travel… anything but into the status of more rooms and walls unless you really need them.

Not Investment Property-You must live in your home, and this must be your primary residence. NACA is focused on increasing wealth through home ownership, not investments. You can buy a foreclosed home if you find one you like, but you must live in it.

Income-pay stubs, tax returns, bank accounts-They will be in your business! Also a big deterrent for many. In order to become NACA qualified, which means you can afford, maintain, and keep your home, you must show income, tax returns, bank accounts and savings patterns over a period of time. If you walk into a NACA session and have all of this documented for a continuous period (perhaps 3 months) then you can be qualified faster. If you don’t have steady paperwork, then you might have to prove this pattern over a short time. NACA counselors will go over your accounts, and your debits to highlight your spending habits. They will show you where you can put money for savings, and help you establish more conscious patterns that in the long run are better for you. For me, I never realized how much I ate out or how much I spent on books!

Clean or cleanable credit report-Each time you have a meeting with a NACA counselor, your credit report is pulled. That first report is your base. There is no concern with a credit score, only what is on your report. Your credit does not determine your loan rate either. Everybody starts with the same %. If you have derogatory entries on your report you are not turned down. NACA expects you to go through the process to clean up your report, which may mean adding several months to your qualification. You might have to enter into arrangements with old bills to pay an agreed upon balance. If you have current bills on your report, you must be current with them over a period of months, showing responsibility. If you have big dings on your report such as repossessions and bankruptcy you are still okay as long as they are documented to be discharged and no longer your responsibility. Regular pulling of the report also assures that you have no new obligations.

Savings Account- Part of the NACA creed is to maintain your home. Demonstrating this falls partly to your ability to save money. You will need to show a regular savings pattern over 2-3 months. Money that you do not touch! In addition there is the concept of payment shock. Here, NACA counselors find the difference between your present rent and your prospective mortgage. You must save this amount for 2-3 months. Obviously this suggests that if you can’t save that…you couldn’t pay a mortgage!

I accepted the NACA way. Accepted their realtors, inspectors, and regulations and found out that everything they promised was realized. After 2 months of savings pattern work, I was NACA qualified and able to look for a home. The time taken helped quell some of my impulses for the party shack and we looked for solid investments and good deals. It took about 6 more weeks to find the house, get it inspected, go through lender paperwork processing and set up a closing appointment. Through NACA negotiations we were able to have our builder make many concessions. They brought down an already low rate, installed new stainless appliances, extra fixtures, gave us a year off from HOA dues, and our loan is serviced through Bank of America.

As promised we had no down payment and no closing costs. I came to closing with a check for $264.59 for partial property taxes and walked away with the keys to a $198,000 1900sq ft, new construction home with a 4% fixed rate 30-year loan with principle and interest of $940 per month.

So I allowed a different take on things and all went well for our house hunt. We brought a beautiful home. I was persistent and patient and the tools that I learned from my NACA experience have really paid off and added to my journey down the road less traveled. When I talk about flexibility and freedom, part of that is financial. If I made choices that increased my financial responsibilities, I might be forced to make choices to maintain them at the cost of things that I enjoy spending money on more! Those choices might interfere with my freedom and flexibility. So, utilizing NACA as an option allowed me to balance, still have a great home, but leave opportunity for me to comfortably maintain what is most important to me…my freedom.

In my neighborhood I regularly see the for sale signs come up, or go down because no one will buy in this tight credit market. I see my old neighbors leave their homes in foreclosure or rent them out to avoid that foreclosure. While I know the value of the home that we eventually chose is probably on the lower side right now because of the overall market, I am confident and feel very protected in our cocoon. So glad I didn’t fall for the party shack. Why didn’t I? Because I looked down the road less traveled.