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- Native Americans can lease land from their tribe so they can get 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 home buyers should work with their tribes to understand the loan options available to them.
If you are looking to buy or build a home on a Native American reservation, you will likely encounter some obstacles. Getting a mortgage in these areas is complex due to the way land ownership is structured. But hopeful Native American homeowners have options when it comes to securing 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 it sits on. But tribal lands are held in trust by the US government for tribes or individuals, and these lands cannot be mortgaged.
However, this does not mean that it is impossible to obtain a mortgage on trust land. On trust land that is owned by a tribe, the buyer can lease the land to their tribe, and the mortgage can be on the house and the lease, not the land itself.
Section 184 Loans
Section 184 loans are guaranteed by the Office of Native American Programs of the US Department of Housing and Urban Development. These mortgages are specifically aimed at helping Native Americans and Alaska Natives access property on and off 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 get mortgages through the Section 184A program.
Section 184 loans require down payments of 2.25% for loans over $50,000 and 1.25% for loans under $50,000. You will also have to pay a one-time fee of 1.5% of the loan amount and an annual mortgage insurance premium of 0.25% until you reach 22% of the equity in your home.
These mortgages are not available everywhere in 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 only have partial approval, which means that Section 184 loans are only available in certain areas. States with partial approval 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 want a Section 184 loan, you will need to work with a participating lender.
Native American Direct Loan
The US Department of Veterans Affairs offers direct loans to veterans who are Native American or whose spouses are Native American.
These mortgages work the same way as VA loans, with a few differences.
With an 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 be working with a private lender to get a VA-backed loan like you would with a standard VA loan. With an NADL mortgage, the VA is the lender.
NADL mortgages require no down payment or mortgage insurance, and they come with low mortgage rates. You’ll also pay lower financing fees than a regular VA loan. The finance charge for an 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 Native American Direct Loans are affordable options for those looking to purchase a home on trust land. But these are not necessarily your only options.
Getting a conventional mortgage on trust land may be possible, depending on where you are, but it will likely be extremely difficult.
Fannie Mae, one of the biggest purchasers of conventional mortgages, says they have made deals with a few different tribes to secure mortgages on their land. These tribes include the Bay Mills Indian Community and the Sault Ste. Marie Tribe in Michigan, and Pueblo d’Acoma and Pueblo de Santa Ana in New Mexico.
However, Fannie Mae does not make loans itself, so you will need to find a lender who is willing to give a mortgage on trust land and is familiar with the process.
FHA-backed mortgages made on trust land are called Section 248 mortgages. These mortgages work the same way as standard FHA loans.
With a Section 248 mortgage, you won’t need to pay an upfront mortgage insurance premium. You will, however, have an annual bonus, which is based on the term of your loan, the amount of the loan and the amount you have set aside. This can vary between 0.45% and 1.05% of the loan amount each year.
To qualify for an FHA Section 248 mortgage, you will need a credit score of at least 580. Borrowers can deposit as little as 3%.
The US Department of Agriculture guarantees mortgages issued by private lenders and offers its own direct loans to low-to-moderate income borrowers in eligible rural areas.
USDA guaranteed loans allow 0% down payments and come with affordable rates and costs. To qualify, you will need to be in an area that the USDA defines as rural. You can use its eligibility map to see if your area is eligible.
USDA Direct Loans are 0% mortgage loans for low-income borrowers who do not have access to “decent, safe, and sanitary housing.” With this program, you will receive payment assistance to reduce your monthly mortgage payment.
Work with your tribe to determine what is available to you
Before you start considering your loan options and researching lenders, it is important to know what types of agreements your tribe has with the entities that guarantee loans on trust land. If your tribe does not have such agreements, you may not be able to obtain a mortgage on their land.
For an NADL mortgage, for example, your tribe must have a memorandum of understanding with the Department of Veterans Affairs detailing how the program works.
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