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Section 184 Loan Program Guide and Program Requirements

Section 184 Loan Program Guide and Program Requirements

  • Important Section 184 Loan Considerations
  • Pros Cons
    • Ability to buy a home with a low down payment (2.25% for loans above $50,000) and minimal borrower financial contribution
    • Attractive mortgage rates
    • Flexible borrower qualification requirements (no credit score required, case-by-case approval)
    • Applies to both home purchase loans and refinances
    • Can be used for new home construction and property rehabilitation
    • No borrower income limits
    • Geographic property eligibility restrictions
    • Loan limits
    • Relatively low borrower debt-to-income ratio limit
    • Requires upfront and ongoing mortgage insurance fees (guarantee fees)
  • Section 184 Loan Program Overview
  • The Department of Housing and Urban Development (HUD) offers the Section 184 Loan Program to enable eligible Native Americans to buy a home with a low down payment and at attractive mortgage rates as compared to conventional mortgage programs.  The HUD Section 184 Loan Program was established in 1992 to increase home ownership and improve access to mortgage financing in Native American communities.  HUD guarantees 100% of the mortgage amount for Section 184 loans, which protects the lender from losing money in the event that borrowers cannot repay their mortgage. Section 184 Loans are offered through participating Native American tribes through an approved third-party lender, such as a bank, mortgage bank, mortgage broker or credit union.  Participating tribes agree to certain program guidelines addressing loan terms, property rights and land access.  Because the program is only offered through participating Native American tribes, Section 184 Loans are only available in selected states and counties.

    The key benefits of a Section 184 Loan is that you can purchase a home with a down payment as low as 2.25% (for mortgage amounts over $50,000) or 1.25% (for mortgage amounts below $50,000). Section 184 Loans also offer attractive mortgage rates and more flexible borrower qualification requirements, which help more borrowers qualify for mortgages to buy homes. Section 184 Loan mortgage rates are lower because the government, through HUD, insures the loan .

  • How a Section 184 Loan Works
  • Although HUD determines program guidelines and borrower eligibility, borrowers apply for Section 184 Loans through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet Section 184 loan requirements and qualify for the program according to HUD guidelines. Participating tribes can provide a list of approved lenders or you can view a list of Section 184 Lenders on the HUD web site.

    Use the FREEandCLEAR Lender Directory to find lenders in your state that offer Section 184 Loans and a wide range of other no or low down payment programs

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  • Borrowers can combine an Section 184 loan with a down payment grant, closing cost assistance program, qualified subordinated second mortgage, personal gift or employer program to help pay for a down payment, closing costs or property renovations, allowing the borrower to purchase a property with minimal personal financial contribution. Down payment and closing cost assistance grants as well as qualified subordinated second mortgages are typically provided through state or local housing agencies or Native American housing authorities or tribes.

  • Section 184 Loan Eligibility Requirements
  • To be eligible for a Section 184 Loan, you must meet certain borrower qualification requirements and be currently enrolled as a member of a federally recognized Native American tribe.  Borrowers are required to provide verification of their enrollment in a tribe when they apply for the program.  Borrowers should contact their tribe with questions about the enrollment and verification process as neither lenders nor HUD manage that function.

    Please note that the tribes that participate in the program determine the locations where Section 184 Loans can be used which means that the program is only available in certain states or only available in certain counties within certain states.  We outline the geographic availability of the Section 184 Loan Program below.  Please note that the property being financed does not need to be located on tribal trust or federally-designated Native American land to be eligible for the program as long as it is located in an eligible state or county. 

    • The Section 184 Program is available in all counties in Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Indiana, Kansas, Massachusetts, Maine, Michigan, Minnesota, Montana, North Carolina, North Dakota, New Mexico, Nevada, Oklahoma, Oregon, South Carolina, South Dakota, Utah, Washington and Wisconsin.
    • The Section 184 Program is available in selected counties in Alabama, Connecticut, Iowa, Illinois, Louisiana, Missouri, Mississippi, Nebraska, New York, Rhode Island, Texas and Wyoming. 
    • The program is not available in Arkansas, Delaware, Washington D.C., Georgia, Kentucky, Maryland, New Hampshire, New Jersey, Ohio, Pennsylvania, Tennessee, Vermont, Virginia and West Virginia.
  • Section 184 Loan Requirements
  • We review the key borrower Section 184 Loan qualification requirements below.

    Approval Process

    Instead of using inflexible rules and an automated process to evaluate applicants, the Section 184 Program uses a more flexible, human-based approached to determine if a borrower can qualify for a mortgage. Evaluating applicants on a case-by-case basis means that more borrowers qualify for the program.

    Credit Score

    The Section 184 Loan Program does not have a minimum credit score requirement which makes it ideal for eligible, credit-challenged borrowers. Additionally, unlike most mortgage programs, borrowers with lower credit score are not required to pay higher mortgage rates.

    Borrower Debt-to-Income Ratio

    Lenders typically use a debt-to-income ratio of 41% to determine what size loan borrowers can afford. The debt-to-income ratio represents the maximum percentage of a borrower's monthly gross income that can be spent on total monthly housing expense plus other monthly debt payments such as credit card, auto and student loans. The 41% maximum debt-to-income ratio is lower than the debt-to-income ratio limits typically used for conventional mortgage programs and other government-backed programs such as the FHA Mortgage Program. The lower the debt-to-income ratio, the smaller the mortgage you qualify for. Please note that it may be possible to qualify for a Section 184 Loan with a debt-to-income ratio greater than 41% under certain circumstances such as if the borrower has a very strong financial profile.

    Borrower Income Limit

    The Section 184 Loan Program does not apply borrower income limits. The FHA and VA Home Loan Programs also do not apply borrower income limits while the USDA Home Loan Program and many conventional low down payment mortgage programs do apply a income limits.

    Borrower Financial Reserves Requirement

    The program does not require borrowers to hold minimum funds in reserve at the time the mortgage closes; however, we recommend that you hold sufficient funds in reserve to cover three-to-six months of total monthly housing expense (mortgage payment plus property taxes and homeowners insurance plus homeowners association (HOA) fees, if applicable). Financial reserves help borrowers weather unexpected financial challenges after your mortgage closes.

    Borrower Employment History Requirement

    While the program does not technically apply an employment history requirement, lenders are required to verify the borrower's employment for the prior two years.  This effectively means that borrowers are required to have two years of continuous employment history to be eligible for a Section 184 loan. Certain exceptions may be made for borrowers who were in the military or recently graduated from college or graduate school as both military service and full-time education typically count as employment history when you apply for a mortgage. Additionally, explainable employment gaps such as seasonal jobs or situations where the borrower has returned to their job after an extended absence may be permitted under certain circumstances.  This employment history requirement is consistent with other low or no down payment mortgage programs.

    First-Time and Repeat Home Buyers

    The program is available to both first-time and repeat home buyers as compared to other low down payment mortgage programs that are only available to first-time buyers.  Eligible borrowers can use the program multiple times but can only have one Section 184 Loan outstanding at a time.

    Home Buyer Education Class

    Although not mandatory, program guidelines highly recommend that borrowers take a home buyer education class or counseling before they apply for a mortgage. The class focuses on helping borrowers understand how mortgages work as well as the financial commitment required by owning a home.  In some cases tribes or lenders offer borrowers a financial incentive to take the class.

  • Section 184 Loan Costs and Fees
  • Mortgage Rate

    Section 184 Loan mortgage rates are lower than most conventional programs and consistent with other government-backed low down payment programs such as the FHA, VA and USDA loans.  Additionally, unlike most mortgage programs, borrowers with lower credit score are not required to pay higher mortgage rates.  The mortgage rate is lower because the program is backed by a government agency and borrowers pay mortgage insurance fees.  If possible, borrowers should shop multiple lenders to find the Section 184 Loan with the lowest mortgage rate and closing costs.

    Closing Costs and Extra Fees

    The Section 184 Home Loan Program charges standard closing costs and fees and monitors approved lenders to ensure that they do not charge borrowers excessive fees.  Additionally, aside from the upfront and ongoing monthly mortgage insurance fees, borrower are not required to pay extra costs to participate in the Section 184 Loan Program.

    Impound Account

    Along with their mortgage payment, the program requires borrowers to pay property tax, homeowners insurance and ongoing mortgage insurance fees into an impound account on a monthly basis. An impound account is a trust account controlled by the lender from which expenses such as taxes and insurance are paid when due. The impound account does not affect the amount of fees the borrower is required to pay for the mortgage.

  • Section 184 Loan Mortgage Insurance Fees
  • Program guidelines require that borrowers pay upfront and ongoing mortgage insurance fees, also called a guarantee fees. The fees protect lenders against losses that result from defaults. The upfront Section 184 Loan mortgage insurance fee equals 1.5% of the loan amount and borrowers can finance the fee by adding it to their mortgage. If the borrower's loan-to-value (LTV) ratio is greater than 78%, they are also required to pay an ongoing monthly mortgage insurance fee equal to 0.25% of the mortgage amount. Similar to private mortgage insurance (PMI) for conventional mortgages and FHA mortgage insurance premium (MIP), the ongoing Section 184 mortgage insurance fee is an additional cost to borrowers on top of their monthly mortgage payment. The ongoing monthly insurance fee is less expensive than PMI or FHA MIP and declines a little every year as your mortgage balance decreases.

  • Mortgage Type and Loan Amount
  • Mortgage Program

    The program only applies to fixed rate mortgages with terns of 30 years or less.  30 and 15 years are the most common length of Section 184 loan.  Adjustable rate mortgages (ARMs) and interest only mortgages are not eligible.

    Mortgage Type

    The program applies to both home purchase mortgages as well as refinances, including streamline and cash-out refinances.  Additionally, unlike almost all low down payment mortgage programs, Section 184 Loans can be used to finance the construction of a new home or the significant rehabilitation of a property.

    Loan Limits

    There are limits to the size of mortgage you can obtain through the Section 184 Loan Program. The loan limits vary by county and by the number of units in the property with a single-unit property having the lowest limits.  Loan limits for a single-unit property range from $271,050 to $417,000.  HUD provides a list of Section 184 loan limits by county that you can use to find the loan limit that applies to you.

    Assumable Loan

    Section 184 Loans are assumable which means the mortgage can be transferred from the original borrower to a new borrower if the property is sold, as long as the new borrower meets program eligibility requirements.  Most mortgages are not assumable so this is a relatively unique feature of the program.  By enabling borrowers to offer attractive loan terms to potential home buyers through an assumable loan, Section 184 Loans can help support property values.

  • Property Eligibility
  • For individual borrowers, the Section 184 Loan Program only applies to owner occupied properties. You can use the program to purchase single-family homes, condominiums, manufactured homes or multi-family properties with up to four units such as an apartment building with four residences. For multi-family properties at least one of the units needs to be owner occupied, or lived in by the individual(s) who obtained the loan to purchase the property.  Please note the owner occupancy requirement does not apply to Tribally Designated Housing Entities, Native American Housing Authorities or Native American tribes.  In some cases tribes, authorities or housing entities use the program to build houses and then sell the houses to tribe members who assume the Section 184 Loan.

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  • Sources

    Section 184 Program Guidelines: https://www.hud.gov/program_offices/public_indian_housing/ih/homeownership/184

    Section 184 Program Eligibility Map: https://www.hud.gov/sites/dfiles/PIH/documents/Section184StateApprovals.pdf

    Section 184 Program Loan Limits: https://www.hud.gov/sites/dfiles/PIH/documents/184LoanLimits.pdf

    Section 184 Program Mortgage Insurance Fees: https://www.hud.gov/program_offices/public_indian_housing/ih/homeownership/184/borrowers 

About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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