How can I use a Section 184 loan?
All FHA borrowers must pay a mortgage insurance premium (MIP) to the FHA-an up-front payment as well as an annual payment. Borrowers pay 1.75% of the loan balance-along with annual MIPs, which are paid monthly and based on the total value of the loan. Borrowers who can put down 10% or more pay these premiums for 11 years. Anyone who makes a down payment of less than 10% must make these premium payments for the duration of their mortgage.
The FHA holds the proceeds from mortgage insurance premiums (MIPs) in an account used to pay for the loan program. As a result, it is one of the only government agencies to be entirely self-sufficient, without reliance on taxpayer funding.
Pros and Cons of HUD Loans
HUD’s Section 184 loan program is designed to promote homeownership among Native Americans. Among the benefits are the low down payment requirements.
Qualification requirements are much more flexible than traditional loans. For example, interest rates are determined by market rates versus a borrower’s credit score.
Limitations include that fewer lenders offer Section 184 loans and the loans are only offered in eligible areas, which are determined by participating tribes. Also, borrowers are required to pay mortgage insurance, which adds to the cost of the loan.
Pros and Cons of FHA Loans
If you have below-average credit and are short on funds for a down payment, an FHA-insured loan can help you become a homeowner. FHA loans can also potentially be an option for manufactured homes.
Another advantage of FHA loans is that they can be assumable, meaning that whoever buys your property can take it over from you, while conventional mortgages generally are not. The buyer has to qualify by meeting the FHA’s terms. Once approved, they assume all of the obligations of the mortgage upon the sale of the property, relieving the seller of all liability.
While getting approved is easier than it is for a standard loan, MIPs add to the overall cost of the loan. That’s why some FHA loan guarantee recipients later seek to refinance their properties with a conventional bank loan once their credit history has improved.
Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or with HUD.
Special Considerations
FHA-guaranteed loans are part of HUD’s mandate to encourage homeownership. Other government-sponsored mortgage loan options may also be available. There are two other types of government agency-insured loan programs-U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans-so it can also be important to research all potential options.
When analyzing any type of home loan, every borrower should consider all of the costs involved. A mortgage will come with interest to be repaid over time, but that is not the only cost. All types of mortgage loans have a variety of different fees that may be required up front or added to the loan’s payments.
Also, keep in mind that mortgage payments and mortgage insurance from any type of loan may offer some tax breaks, but most involve an itemized tax deduction.
What is a Section 184 loan?
U.S. Department of Housing and Urban Development (HUD) Section 184 loans are available to Native Americans to finance a home as a primary residence. The loans are backed by HUD and aim to promote homeownership among Native Americans.