The workings of section 184 may be confusing for those unfamiliar with it, and so the purpose of this piece will be to give you a quick but thorough introduction into the world of section 184. We’ll cover all the essential information you need to have if you or someone close to you is hoping to apply for a loan. Let’s get right to it.
Origins of Section 184
Native American communities experienced significant difficulties concerning land and homeownership following the institution of the Indian or Native reserve system. Their troubles arose because these lands are held under a trust (tribal or individual), which means that banks or other traditional lenders cannot legally mortgage them. Financing, then, becomes almost impossible for anyone trying to purchase a home.
In 1992, the United States Congress sought to address the unique challenges that American Indians and Alaskan tribal natives faced regarding homeownership. Thus, the Indian Home Loan Guarantee - Section 184 loans - came into existence. This would be a system that offered favorable mortgage loan terms exclusively to members of the affected tribes, villages, or Tribally Designated Housing Entities.
The initiative’s overall aim was to facilitate a clear path to homeownership for these communities while bolstering the strength and value of Native communities and assets across all participating states and counties in the United States.
Benefits of Section 184
There are various ways in which the Section 184 Indian Home Loan Guarantee program assists people beyond what traditional banks and lenders offer in the form of mortgage loans. Depending on each applicant’s particular circumstances, these may include:
Lower down payments - A typical loan applicant will only be required to have a down payment of approximately 2.25% of the property value
Minimal Interest Rates - Compared to traditional mortgages, loan recipients can expect to pay well below the average interest rate on their loan. The Upfront Loan Guarantee Fee is only 1.5% and can be folded into the loan plan, while the Annual Mortgage Insurance stands at .25% for loans with a loan value of 78% and above.
Manual Underwriting - This is the detailed, personalized review of each loan application, rather than the use of computers and automated systems that do not consider individual circumstances when approving or declining loan applications
- Member Protection - Borrowers will be much better protected against predatory lenders they might have otherwise been faced with as the program closely monitors approved lenders
Section 184 Loan Uses
Another positive feature of Section 184 loan plans is that they may be used in a variety of ways, including:
- The purchase of an existing residential home
- The construction of a new residential home on permanent foundations
- The rehabilitation or renovation of an existing home
- The refinancing or renegotiation of the loan terms attached to an existing home (cash-out, streamline, rate and term, etc.)
How to Qualify for Section 184 Loans
There are certain factors taken into consideration when borrowers are considered for approval under this system. The following criteria will typically apply, although cases will be determined on an individual basis:
Tribal Affiliation - You should be a registered member of a Federally Recognized Tribe, a list of which you might find here.
Credit - Your credit score should be at least 600. Minimize or pay off any student loan, credit card, personal, or any other form of debt you might have to optimize your debt ratio.
Income - Demonstrate the ability to keep up with payments (2 years holding a job) to maximize your chances of success
- Bankruptcy - You will need to have discharged the terms of any previous bankruptcy filings at least two years before your Section 184 loan application. If you have defaulted on an earlier Section 184 loan, you will not be eligible for a new one.
To maximize your chances of a successful Section 184 loan application, it’s vital that you work with a reputable and accredited lending institution. They will guide you through the often-complex processes that come with tribal land actions and will serve as your link to the Bureau of Indian Affairs. You can go through a more detailed outline of loan qualification requirements here.
The Indian Home Loan Guarantee program is set up to provide as much assistance to as many people as possible. Should you wish to apply for a loan through this program, the above information should serve as a rough guideline. For more information, you may visit the HUD site here. Best of luck!