A Guide to the Section 184 Home Loan

FT Contributor  | 

The Section 184 Indian Home Loan Guarantee Program, created in 1992, is designed to help Native Americans achieve homeownership. It does so by offering loan guarantees to lenders looking to make home mortgage loans to Native borrowers. This means that lenders do not need to assume risk when offering financing to typically high-risk borrowers, since they will be repaid if there is a foreclosure.

There are many considerations to be taken when trying to determine if you are ready to buy a home, but achieving that dream can be a challenge. For Native Americans, clear disadvantages work as potential roadblocks to fulfilling this goal. In fact, according to the U.S. Department of Housing and Urban Development (HUD), members of this demographic are 11 percent less likely to be homeowners than non-Native Americans.

If you count yourself as a member of a Native American tribe, Section 184 guaranteed financing can open new doors — literally. Thousands of applicants have been able to find affordable financing for Native American housing since its inception. If you’re curious about whether or not you qualify, or if you want to know more about its specific benefits, you’ve come to the right place.  

Section 184 Eligibility

After educating yourself on the homebuying process — many tribes and HUD-approved counseling agencies offer classes on this topic (some lenders may offer financial aid to those who do so) — you should determine if you are eligible for a loan under this program. Here are the qualifications for residents to be eligible for an HUD 184 loan:

First, you must be an enrolled member of a federally recognized tribe that is participating in the program. You’ll need to provide verification of this, and you can contact your tribe for more details on how to become enrolled. A list of participating tribes can be found here.

Secondly, your eligibility also depends on your state of residence. Residents in the following states are ineligible: Arkansas, Georgia, Kentucky, Maryland, New Hampshire, New Jersey, gOhio, Pennsylvania, Tennessee, Vermont, Virginia, and West Virginia. Only select counties have been approved in Alabama, Connecticut, Iowa, Illinois, Louisiana, Missouri, Mississippi, Nebraska, New York, Rhode Island, Texas, or Wyoming. All other states and counties are eligible.

Of course, these aren’t the only considerations to keep in mind; there are some steps you can take to personally determine if you are ready to take on a new loan. Do you have a stable and adequate source of income? What does your employment history look like? How does your credit score look? While a poor score doesn’t disqualify applicants, it doesn’t hurt to take some proactive steps to begin repairing your credit.

Benefits of Section 184 Loan

Because many Native Americans are from low-income areas, and may have poor or no credit, prospective homeowners often have difficulty finding loans with reasonable interest rates. Tribal loans through this program can alleviate this problem. Before beginning your search for a tribal lender, you may want to learn more about the specific benefits of getting a Section 184 loan.

Here are the key benefits:

  • Low down payments: This loan gives borrowers the ability to buy a home with a minimal down payment. Loans below $50,000 only require 1.25 percent money down, and for loans above $50,000 borrowers can expect to only pay 2.25 percent down. In the latter example, for a house of $200,000 — the median cost of a house in the U.S. — you’d only have to put down $5,000.
  • Excellent mortgage rates: With interest rates based on current market rates (and not individual applicants’ credit scores), borrowers can be assured that they will get a fair rate.
  • No credit or income restrictions: The best thing about Section 184 Loan credit requirements is that there aren’t any. While there are best practices when it comes to seeking out loans with poor credit, applicants for Section 184 loans can apply without fear; they are reviewed on an individual basis. A poor credit score (or no credit) does not disqualify you from receiving this loan. Furthermore, there are no income limits to worry about.
  • Versatility: Whether you’re looking to purchase your first home or are refinancing your existing home, a Section 184 loan can cover many needs. Furthermore, funding can be used to repair your existing property — or even build your new home. We’ll cover more about this in the next section.

Section 184 Loan Coverage

Depending on your household needs, you might find that the loan doesn’t cover what you require. Before applying, ensure that an HUD 184 loan covers your family’s needs. This form of financing only covers single family homes (1-4 units), and only primary residences are covered — your legal residence for the purpose of income tax or acquiring a mortgage. The reason for this, as explained on the HUD website, is that “Since 184 strives to increase homeownership to all Native Communities, the guarantee funds are reserved for primary residences rather than second or investment properties.”

If your financial needs fall under the following projects or purchases, it may be covered by the Section 184 loan:

  • Buying an existing home or constructing a new home.
  • Funding home renovations or rehabilitation, including repairs and updates, such as weatherization.
  • Constructing a new home, including those built on site or pre-built homes on permanent foundations.
  • Refinancing your home.

Does your new home project fall into one of these categories? If so, you should take some time to find an approved lender and see what this program can do for you.

List of Approved Tribal Lenders

If you qualify for a Section 184 Loan, there’s no reason not to see what it can do for you. That process starts with finding an approved tribal lender. First, take a look at the HUD’s list of approved lenders, which can be found here, most recently updated in August 2017. You’ll notice that each lender services specific states, so be sure to compare those that are applicable to you before settling on one.

Note that, as a part of HUD 184, applicants are protected from predatory lending. Nevertheless, it is always best to play it safe by only reaching out to to lenders listed in this document for Native American housing.

Managing Bad Credit and No Credit Loans

Once you get approved for a loan, you need to begin taking action — especially if you’ve taken a bad credit or no credit loan, which can have variable terms. To improve your chances of financial success and begin your life as a homeowner on the right foot, there are some steps you can take. First off, if you haven’t already created a detailed budget prior to getting approved for an HUD 184 loan, now is the time.

When fulfilling loan obligations, you’ll want to reduce unnecessary expenditures as much as possible in order to ensure you are able to make timely payments. While occasionally dining out or spending money on a fun activity is acceptable, you’ll want to stay within your budget. You’ll also be making a lot of furniture and home-improvement purchases in the next few months, and it can be easy to let expenditures get out of hand. By creating a budget, you can make gradual improvements to your living space in a financially sustainable way.

Finally, as noted earlier in this article, it helps to monitor your credit. While the additional debt incurred by a loan may have an immediate negative impact on your score, you should begin to see a positive change by making regular payments. If anything looks unusual on your report, dispute credit report errors and determine if any fraudulent activity has taken place.

Resources for Managing Mortgage Debt

With those tips in mind, let’s take a look at some helpful resources for those who have taken on a bad credit or no credit home loan:

  • Consumer Financial Protection Bureau: The CFPB is a U.S. government agency that ensures that financial organizations treat consumers fairly. They offer plenty of advice and guides for maintaining a mortgage, managing finances after accruing mortgage debt, and overcoming many common financial issues related to homeownership.
  • USA.gov: This resource, also provided by the U.S. Government, the provides guidance to those interested in getting or refinancing a mortgage. They also instruct consumers on how to file housing-related complaints, acquire property insurance, and recognize scams like predatory loans.  
  • Mortgage Payment Calculator: Interested in applying for a new home loan, or potentially refinancing your current mortgage? This online mortgage payment calculator can help you determine what loan amount, interest rate, and loan terms are manageable for your current life circumstances.
  • U.S. News – The Best Mortgage Lenders of 2018: When you’re ready to get down to brass tacks, take some time to compare mortgage lenders. While only approved lenders can offer Section 184 financing, you should compare what rates are available from the most acclaimed lenders. Depending on your finances, they may prove to be viable options.
  • HUD.gov – Office of Native American Programs: When managing finances after acquiring a mortgage, it pays to research other programs and resources available to help. The Office of Native American Programs is the best place to keep tabs on federal programs designed for Native American households. Keeping up to date on your eligibility for these can help keep you and your family in the black.

Native Americans have historically had systemic disadvantages when it comes to achieving the American Dream. Section 184 seeks to resolve this by helping this group with financial education and assistance. With a little information, willpower, and responsible spending habits,  you can maximize your chances of success as a homeowner.

This post was updated February 19, 2019. It was originally published September 27, 2018.