Home loans for Native American borrowers

On trust land that belongs to a tribe, the homebuyer can lease the land from their tribe, making getting a mortgage possible. Fly View Productions/Getty Images

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• Native American people can lease land from their tribe to be able to get a mortgage on their reservation.
• There are a few mortgage options that enable borrowers to get a mortgage on trust land, including Section 184 loans.
• Native American homebuyers should work with their tribes to understand what loan options are available to them.

If you're looking to buy or build a home on a Native American reservation, you'll likely run into some hurdles. Getting a mortgage in these areas is complex due to how the ownership of the land is structured. But hopeful Native American homeowners do have options when it comes to getting a mortgage on their reservation. 

Why it's difficult to get a mortgage on Native American reservations

Because of the legal status of Native American reservations and other tribal land, it's often very challenging to get a mortgage in these areas.

Traditionally, when you get a mortgage, your loan is secured by the property you're purchasing. This includes the home and the land it sits on. But tribal land is held in a trust by the US government for tribes or individuals, and this land can't be mortgaged.

However, this doesn't mean that getting a mortgage on trust land is impossible. On trust land that belongs to a tribe, the homebuyer can lease the land from their tribe, and the mortgage can be made against the home and the lease, not the land itself.

Section 184 loans

Section 184 loans are guaranteed by the US Department of Housing and Urban Development's Office of Native American Programs. These mortgages are specifically aimed at helping Native Americans and Alaska Natives achieve homeownership on and off trust land.

To qualify for a Section 184 loan, you need to be a Native American or Alaska Native borrower and a member of a federally recognized tribe. Native Hawaiians can obtain 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'll also need to pay a one-time fee equal to 1.5% of the loan amount, and a 0.25% annual mortgage insurance premium until you reach 22% equity in your home.

These mortgages aren't available everywhere in the US. 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, meaning 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're in an eligible area and are interested in getting a Section 184 loan, you'll need to work with a participating lender.

Native American Direct Loan

The US Department of Veterans Affairs offers Native American Direct Loans to veterans who are Native American or whose spouses are Native American.

These mortgages work similarly to VA loans, with a few distinctions.

With an NADL mortgage, you can buy, build, or improve a home on trust land. These mortgages come directly from the VA, meaning you won't work with a private lender to get a loan that's guaranteed by the VA, 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 a lower funding fee than you would with a regular VA loan. The funding fee for an NADL mortgage is 1.25% for a purchase mortgage, and 0.5% if you're refinancing.

Other types of mortgages for Native American and Alaska Native homebuyers

Section 184 loans and Native American Direct Loans are both affordable options for those looking to purchase a home on trust land. But they aren't necessarily your only options. 

Conventional mortgages

Getting a conventional mortgage on trust land may be possible, depending on where you're located, but it will likely be extremely challenging.

Fannie Mae, one of the largest purchasers of conventional mortgages, says that it has agreements with a few different tribes to guarantee mortgages made on their lands. These tribes include the Bay Mills Indian Community and the Sault Ste. Marie Tribe in Michigan, and the Pueblo of Acoma and Pueblo of Santa Ana in New Mexico.

However, Fannie Mae doesn't originate loans itself, so you'll need to find a lender that is willing to originate a mortgage on trust land and is knowledgeable about the process.

FHA mortgages

FHA-backed mortgages made on trust land are referred to as Section 248 mortgages. These mortgages work similarly to standard FHA loans.

With a Section 248 mortgage, you won't need to pay an upfront mortgage insurance premium. You will have an annual premium, though, which is based on your loan term, loan amount, and how much you put down. This can range between 0.45% and 1.05% of the loan amount each year.

To qualify for an FHA Section 248 mortgage, you'll need a credit score of at least 580. Borrowers can put down as little as 3%. 

USDA mortgages

The US Department of Agriculture guarantees mortgages originated by private lenders and offers its own direct loans to low-to-moderate income borrowers in eligible rural areas.

Loans guaranteed by the USDA allow 0% down payments and come with affordable rates and costs. To qualify, you'll need to be in an area that the USDA defines as rural. You can use its eligibility map to see if your area qualifies.

Direct USDA loans are 0% down mortgages for lower-income borrowers who don't have access to "decent, safe, and sanitary housing." With this program, you'll receive payment assistance to lower your monthly mortgage payment. 

Work with your tribe to determine what's available to you

Before you start considering your loan options and shopping for lenders, it's important find out what kinds of agreements your tribe has with the entities that guarantee loans on trust land. If your tribe doesn't have any such agreements, you may not be able to get a mortgage on its land.

For an NADL mortgage, for example, your tribe needs to have a Memorandum of Understanding with the Department of Veterans Affairs detailing how the program will work.