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- Native Americans may lease land from their tribe in order to obtain a mortgage on their reservation.
- There are a few mortgage options that allow borrowers to obtain a mortgage on trust land, including Section 184 loans.
- Native American homebuyers should work with their tribes to understand what loan options are available to them.
If you’re looking to buy or build a home on a Native American reservation, chances are you’re going to run into some hurdles. Obtaining a mortgage in these areas is complex due to how land ownership is structured. But hopeful Native American homeowners have options when it comes to getting a mortgage on their reservation.
Why It’s Hard To Get A Mortgage On Native American Reservations
Due to the legal status of Native American reservations and other tribal lands, it is often very difficult to obtain a mortgage in these areas.
Traditionally, when you get a mortgage, your loan is secured by the property you are buying. This includes the house and the land on which it sits. But tribal land is in a US government trust for tribes or individuals, and this land cannot be mortgaged.
However, this does not mean that obtaining a mortgage on trust land is impossible. On tribally owned trust land, the homebuyer may lease the tribal land from him or her, and the mortgage may be made against the home and lease, not the land itself.
Section 184 Loans
Section 184 loans are guaranteed by the US Department of Housing and Urban Development, Office of Native American Programs. These mortgages are specifically designed to help Native Americans and Alaska Natives achieve homeownership within and out of trust lands.
To qualify for a Section 184 loan, you must be a Native American or Alaska Native borrower and a member of a federally recognized tribe. Native Hawaiians can obtain mortgages through the Section 184A program.
Section 184 loans require 2.25% down payments for loans over $50,000 and 1.25% for loans under $50,000. You will also pay a one-time fee equal to 1.5% of the loan amount. loan and an annual mortgage insurance premium of 0.25% until you reach 22% equity in your home.
These mortgages are not available in all of the United States. You can get a Section 184 loan anywhere in the following states: Alaska, Arizona, California, Colorado, Florida, Idaho, Indiana, Kansas, Maine, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Mexico, North Carolina , North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Utah, Washington, and Wisconsin.
Some states are only partially approved, which means that Section 184 loans are only available in certain areas. Partially approved states include: Alabama, Connecticut, Iowa, Illinois, Louisiana, Missouri, Mississippi, Nebraska, New York, Rhode Island, Texas, Virginia, and Wyoming.
If you are in an eligible area and are interested in obtaining a Section 184 loan, you will need to work with a participating lender.
Direct Loan for Native Americans
The US Department of Veterans Affairs offers direct Native American loans to veterans who are Native Americans or whose spouses are Native Americans.
These mortgages work similarly to VA loans, with a few distinctions.
With a NADL mortgage, you can buy, build, or improve a home on trust land. These mortgages come directly from the VA, which means you won’t work with a private lender to get a VA-guaranteed loan like you would with a standard VA loan. With a NADL mortgage, the VA is the lender.
NADL mortgages require no down payment or mortgage insurance, and come with low mortgage rates. You’ll also pay a lower financing fee than you would with a regular VA loan. The financing fee for a NADL mortgage is 1.25% for a purchase mortgage and 0.5% if you are refinancing.
Other Types of Mortgages for Native American and Alaska Native Homebuyers
Section 184 loans and direct Native American loans are affordable options for those looking to purchase a home on trust land. But they are not necessarily your only options.
It may be possible to get a conventional mortgage on trust land, depending on where you are, but it will probably be quite challenging.
Fannie Mae, one of the largest buyers of conventional mortgages, says it has agreements with a few different tribes to guarantee mortgages made on their land. These tribes include the Bay Mills Indian Community and Sault Ste. Marie Tribe in Michigan, and the Acoma Pueblo and Santa Ana Pueblo in New Mexico.
However, Fannie Mae does not originate loans itself, so you will need to find a lender who is willing to originate a trust land mortgage and who knows the process.
FHA-backed mortgages made on trust land are known as Section 248 mortgages. These mortgages work similarly to standard FHA loans.
With a Section 248 mortgage, you won’t have to pay a mortgage insurance premium up front. However, you will have an annual premium, which is based on the term of your loan, the amount of the loan, and how much you deposited. This can range from 0.45% to 1.05% of the loan amount each year.
To qualify for an FHA Section 248 mortgage, you’ll need a credit score of at least 580. Borrowers can put down as little as 3%.
The US Department of Agriculture guarantees mortgages originated by private lenders and offers its own direct loans to low- and moderate-income borrowers in eligible rural areas.
USDA-guaranteed loans allow 0% down payments and come with affordable rates and costs. To qualify, you must be in an area that the USDA defines as rural. You can use your eligibility map to see if your area qualifies.
USDA Direct Loans are 0% down mortgages for low-income borrowers who do not have access to “decent, safe and sanitary housing.” With this program, you will receive payment assistance to lower your monthly mortgage payment.
Work with your tribe to determine what is available to you
Before you begin to consider your loan options and search for lenders, it is important to find out what type of agreements your tribe has with entities that guarantee loans on trust lands. If your tribe does not have such agreements, you may not be able to get a mortgage on your land.
For a NADL mortgage, for example, your tribe needs to have a Memorandum of Understanding with the Department of Veterans Affairs that details how the program will work.
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