Native American Home Loans: What You Need To Know

Owning a home gives you a place that’s your own space within a broader community. If you’re someone indigenous to the U.S., you may have wondered about getting a home yourself, whether on tribal land or otherwise. We’ll go over Native American home loans, other mortgage options and important land considerations.

How Is Land Held In Your Tribe?

The first question to answer is how land ownership works if you’re living in a tribal community. This impacts the type of mortgage options that may be available to you. We’ll discuss three primary ways land is handled within tribal communities. If you’re living outside of a reservation, you may choose to skip ahead to the next section.

Reservation land has its own benefits in that it may be subject to certain tax exemptions. Speak with a tax advisor about your individual situation. At the same time, there are considerations you should be aware of if you’re trying to buy or refinance a home located in a tribal community.

Fee Simple

You’ll have the most mortgage options available to you if your property is held in fee simple. Owning a home in fee simple is a fancy way of saying that you own the home and the land attached to it with no restriction. Rocket Mortgage^® and many other lenders offer a full range of home loan options for fee simple-owned properties located on Native American reservations.

Leasehold

Another common way to hold land within a Native American reservation is in a leasehold. Leaseholds involve a long-term rental of the land on which your home sits from your tribe or other owner of the land – typically several decades.

It’s possible to get a mortgage on property held in a leasehold, but Rocket Mortgage doesn’t offer mortgage financing on these properties at this time. The legal work around leaseholds and other associated land rights in Native American reservations is handled by the Bureau of Indian Affairs (BIA). This is due to tribal land being subject to agreements between individual tribes and the federal government.

Trust Land

It’s common for tribal land to be held in trust by the federal government or an individual tribe for the benefit of the individual owners of the stake in that trust. In other words, what you own under this arrangement is not the land itself, but the stake in the trust associated with that land.

This works similarly to leasehold land in that the property rights are handled by the BIA. Your lender has to work with the BIA in addition to qualifying you. Rocket Mortgage doesn’t offer loans on properties held in these types of trusts at this time.

Native American Home Loan Options

There are certain lending options that are available specifically for Native Americans. We’ll cover these first.

Section 184 Loans

Section 184 is a Department of Housing and Urban Development (HUD) loan program aimed to specifically help Native Americans obtain mortgage financing, whether on tribal trust land or otherwise. The program can be used to purchase a primary residence up to four units. You have to work with lender approved by HUD for Section 184 participation. Rocket Mortgage doesn’t offer these loans at this time.

Here are the unique features of this loan option offered through HUD:

• Heritage eligibility: You have to be a member of a federally recognized Native American tribe.
• Low down payment: The down payment is 2.25% when the loan is more than $50,000 and 1.25% on loans up to $50,000.
• Interest rate: The interest rate is based on prevailing market rates, but it doesn’t take into account credit scores as a traditional loan would.
• Upfront guarantee fee: There’s an upfront guarantee fee of 1% of your loan amount. This can be financed into your loan.
• You must be in an approved area: In order to qualify for this loan option, you have to be in a participating state or county.

VA Native American Direct Loans (NADL)

If you’re a Native American, you can get a loan directly from the VA to build, buy or refinance a home on federal trust land. For this, not only do you need to be a member of a federally registered tribe, but you need to have a VA certificate of eligibility.

This means being an active-duty service member, reservist or veteran who meets minimum service time requirements. Qualified surviving spouses and veterans receiving VA disability may be exempt from these requirements. Here are a few of the particulars for this loan product:

• Often no down payment required: Subject to certain exceptions, there’s usually no down payment required when it comes to VA loans. One might come into play depending on if you’re paying off a prior VA loan or you’ve defaulted on a VA loan in the past.
• Primary residence only: This has to be your main home. You can’t use this to purchase a vacation home or investment property.
• Interest rate: Because this loan comes directly from the VA, the Administration sets the interest rate. Although this is decided on a case-by-case basis, interest rates start at 2.5% as of June 2024.
• Flexible credit standards: While you have to meet basic underwriting standards, the VA doesn’t set a minimum credit score, so this may provide breathing room in certain instances for some borrowers.
• No monthly mortgage insurance: There’s no monthly mortgage insurance associated with this loan. Instead, there’s an upfront funding fee for most borrowers. You can finance this fee in the loan if you don’t want to pay it at closing.
• Limited closing costs: While you will still have to consider closing costs, these can be lower on VA loans because they feature very specific rules around what a buyer can and cannot pay for. This may be significant because closing costs can amount to 3% – 6% of the purchase price or loan amount when refinancing.

Mortgage Options Through Your Tribe Or Area

There may be additional mortgage options available for Native Americans through your tribe or based on where you live. You should speak with officials within your tribe and check state housing development websites for available options.

Mortgage Options Available To Everyone

If you don’t qualify for the options above based on not being eligible or living in a particular area, you may still qualify for one of several traditional mortgage options, particularly if you own your property in fee simple. All of these loans will also work if you’re living off the reservation. Let’s run through some options.

Conventional Loans

If you’re looking to get into a house with the lowest down payment that’s not a specialized Native American-designated mortgage, conventional loans often require only 3% down as a first-time home buyer for a primary residence.

If you make 80% or less of the median income in the area where you will be looking to buy, Rocket Mortgage offers ONE+, a program that lets you put 1% down with a grant of 2% from Rocket Mortgage.¹ For a primary residence, the down payment required will never be higher than 5% for a single-unit property.

The following are key features of conventional loans:

• 620 qualifying credit score
• Monthly private mortgage insurance (PMI) can be terminated in many circumstances when you reach 20% equity
• Ability to purchase second homes and rental properties (with a higher down payment)

FHA Loans

FHA loans can be great because they provide flexibility in terms of credit if you’ve had a few bumps in the road in the past. In fact, you can qualify with a credit score as low as 500 if you have a 10% down payment. It’s worth noting that many lenders, including Rocket Mortgage, require a credit score of 580 with a 3.5% down payment.

Here are some other points to keep in mind regarding FHA loans:

• More flexible debt-to-income ratio (DTI) guidelines: DTI is a ratio of your minimum monthly debt expenses compared to your pretax monthly income. Although it’s decided on a case-by-case basis, FHA loans allow for DTI ratios as high as 57%, potentially enabling you to qualify for more based on a higher monthly payment.
• Primary residences only: You have to be purchasing or refinancing your main home.
• Mandatory mortgage insurance premiums (MIP): There are both upfront and monthly MIP fees associated with FHA loans. The upfront MIP may be financed into the loan amount. Unlike PMI, monthly MIP doesn’t come off for as long as you have the loan if you make a down payment of less than 10%. If the down payment or equity amount is 10% or more, it comes off after 11 years.

VA Loans

If you’re not purchasing on the reservation, those with a valid COE can still get a VA loan through lenders like Rocket Mortgage. All the benefits mentioned above about the NADL still apply, but there are a couple of things to keep in mind.

• Lender requirements vary: For example, Rocket Mortgage requires a minimum credit score of 580.
• Interest rates: Rather than being set by the VA, interest rates are based on factors including market conditions as well as your credit score and the size of your down payment.

USDA Loans

While Rocket Mortgage doesn’t offer USDA loans at this time, they’re another popular option to consider. They don’t require a down payment, but there are specific requirements that need to be met.

• Location: The home needs to be in an eligible area. These loans are intended to encourage development in rural areas.
• Income: You can’t make more than 115% of the median income in the area where you’re looking to buy or refinance.
• Occupancy Type: The house has to be your main residence.

Are You Ready For A Mortgage?

Beyond land and qualification considerations, you need to be ready to take on a home and everything that comes with it. Here are several things to think about:

• Down payment and closing costs: The minimum down payment on a primary residence can be anywhere between 3% – 5%. With closing costs being between 3% – 6% of the purchase price, the earlier you can start saving, the better.
• Credit considerations: While there’s a minimum credit score to qualify, it’s also imperative to realize that along with your down payment, your credit score is a big determinant in your personal interest rate. The higher it is, the better your loan terms. Your score goes up if you don’t carry large credit card balances and you make on-time payments, for example.
• Dealing with debt: If you pay off as much debt as possible prior to applying for a mortgage, this can lower your DTI when qualifying, which could allow you to qualify for the house you need based on being able to take on a slightly higher monthly payment.
• Don’t forget maintenance: Homes age, and things break down over time. It’s generally recommended to budget between 1% – 3% of the purchase price for yearly maintenance, depending on the age of the house.

The Bottom Line

Qualifying for a mortgage on reservation land not only deals with your personal financial qualifications, but how your land is held. Lenders like Rocket Mortgage can help you if you own your property in fee simple, meaning your rights to the property are generally unrestricted. If your land is a leasehold or in a trust, the BIA has to sign off on the transaction and not as many lenders do these loans.

There are special home loan programs for Native Americans including Section 184 and the VA NADL. However, if you plan to live off the reservation or don’t qualify for one of these programs, there are many traditional mortgage options available to you as long as the land is owned in fee simple, including conventional, FHA and VA loans.

If you’re ready to move forward, apply today with Rocket Mortgage.

¹ Client will be required to pay a 1% down payment, with the ability to pay a maximum of 3%, and Rocket Mortgage will cover an additional 2% of the client’s purchase price as a down payment, or $2,000. Maximum grant amount is $7,000. Offer valid on primary residence, conventional loan products only. Maximum loan amount of $350,000. Cost of mortgage insurance premium passed through to client effective January 2, 2024. Offer valid only for home buyers when qualifying income is less than or equal to 80% area median income based on county where property is located. Not available with any other discounts or promotions and cannot be retroactively applied to previously closed loans or loans that have a locked rate. This is not a commitment to lend. Rocket Mortgage reserves the right to cancel/modify this offer at any time. Additional restrictions/conditions may apply.