In some areas, such as Native counties, there is a lack of mortgage lending. Because the land in these areas is reserved for those who are members of particular tribes and are held in trust by the United States government, the land cannot be mortgaged. To overcome this obstacle, borrowers have the option of Section 184 loan lenders.
The Benefits of a Section 184 Loan
Section 184 Loan Guarantee Program exists thanks to the Housing and Community Development Act of 1992. Those who participate in the loan will receive a 100% loan guarantee. This means that the lender will be repaid in the event of a foreclosure. A lender will explain your approval odds and will also inform you about the documents you need to have your loan approved.
Why Lenders Can't Loan On Lands Held in Trust
If land is held in trust for a tribe, it cannot be mortgaged. If land is held in trust for an individual, it can only be mortgaged with approval from the Bureau of Indian Affairs. Because a lender is not able to place a lien on a home and is not able to foreclose on a home, they are not able to mortgage a property held in trust.
Any lender is able to become a Section 184 loan lender. They will need to submit a lender application to the HUD for approval. Lenders are also able to market their loans and there is actually a strong market for Section 184 loans. Both national lenders and state housing financing agencies are purchasing Section 184 loans.
How to Obtain a Mortgage
Instead of purchasing land from a tribe, the homeowner will lease the land from the tribe. Only the physical home and the leasehold interest in the home will be mortgaged. You will need to pay a loan guarantee fee of 1.5% to be able to obtain a mortgage that is over $50,000. Ask a lender about whether the fee can be rolled into the mortgage.
You will need to fall under a category that is eligible for Section 184 loans. You could be an Alaska native, an American Indian, a member of a Native tribe, a member of an Alaska village, or a part of tribally designated housing. You will need to be on the list of participating tribes. However, if you are looking for a home in a particular area, this type of program might be your best option.
To learn more, contact a Section 184 loan lender near you.