Section 184 is a unique Loan Guarantee Program specifically designed for Native Americans or Alaska Natives belonging to federally recognized tribes. The Housing and Community Development Act of 1992 pioneered this initiative in response to the scarcity of mortgage options in Indian Country.
Why is Indian Country typically devoid of mortgage lending?
Predominantly, the land within Indian Country is held in one of two ways. The lion's share is owned by the U.S. government, held in trust for the benefit of specific tribes. The remaining portion of tribal land is typically held in trust for individual Native Americans. Given the tribal trust status, lenders are legally restricted from mortgaging such lands. Moreover, any trust land assigned to an individual requires consent from the Bureau of Indian Affairs (BIA). These restrictions render traditional lenders incapable of offering home loans to Native Americans as they cannot mortgage, foreclose a home, or place a lien on individual trust property.
So, how does a Section 184 Home Loan circumvent these constraints?
The Section 184 loans can be availed both on and off tribal lands. Eligible applicants lease the land from the tribe for a term of 50 years. The mortgage then applies to the home and the leasehold interest, while the land remains in trust for the tribe. Thus, the Section 184 loan is structured to secure the leasehold interest rather than the land itself.
Section 184 Loan: A HUD Product, Not FHA
While Section 184 loans share numerous attributes and prerequisites with FHA mortgages, they're not FHA loans. These loans are products of the HUD's Office of Native American Programs. Prospective applicants must apply for the loan through a lender like CrossCountry Mortgage, while coordinating with their tribe and the Bureau of Indian Affairs. The lender assesses the loan documentation and subsequently submits the loan for approval to HUD's Office of Loan Guarantee.
Down Payment and Underwriting Requirements
The down payment requirement for a Section 184 loan is considerably less than conventional or FHA loans. For loans exceeding $50,000, a down payment of 2.25% of the sales price is required, whereas for loans below $50,000, a down payment of 1.25% suffices. Importantly, applicants can utilize gift funds or grants for the down payment if they don't have the necessary resources. The underwriting requisites for Section 184 loans are more flexible, particularly regarding bankruptcy timelines and minimum required credit accounts.
Eligibility Criteria for Applicants and Properties
Eligible applicants include American Indians or Alaska Natives who are members of a federally recognized tribe. Eligible properties should comply with FHA construction and safety standards. The borrower must occupy the property as their primary residence, which excludes the Section 184 loan from being used for second homes or rental properties. However, properties with up to four units are permitted, provided the borrowers occupy one of the units. Furthermore, the property should be situated within an eligible area.
The Section 184 loan caters only to fixed-rate loans, excluding Adjustable Rate Mortgages (ARMs) or Interest-Only loans. Commercial properties do not qualify for this program. Maximum loan limits differ according to the county. The Section 184 loan serves as a distinctive avenue for Native Americans to own homes. Only select lenders can offer this loan, making this program quite unique.
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