Native American homebuyers, when they hear of the Section 184 Loan, often ask whether it’s really better than FHA.
Is the program worth the extra work?
For most, it is. Here’s a summary of Section 184 advantages and disadvantages vs FHA. We’ll go into each aspect in detail after the table.
Section 184 Loan vs FHA -Comparison Table
The check mark indicates the better loan for that feature.
|Loan Feature||Section 184||FHA|
|Down payment||1.25-2.25% ✔||3.5%|
|Upfront mortgage insurance||1.5% ✔||1.75%|
|Monthly mortgage insurance||0.25% ✔||0.85%|
|Can be used on-reservation||Yes ✔||No|
|Credit score||No minimum ✔||580 for 3.5% down|
|Available in all states||No||Yes ✔|
|Tribe membership required||Yes||No ✔|
|Availability||About 140 lenders||Thousands of lenders ✔|
|Tribe approval from HUD required||Yes||No ✔|
Down payment: Section 184 is better
The Section 184 Native American Home Loan requires a 2.25% down payment for loans over $50,000. For loans under $50,000, the down payment is just 1.25%.
FHA requires 3.5% down.
Here is a comparison table in real numbers. It’s clear to see that Section 184 saves the homebuyer significant amounts in upfront out-of-pocket costs.
|Loan Amount||Section 184 Down Payment||FHA Down Payment|
But cost is not where the down payment advantage ends. You are also more likely to get Tribal down payment assistance if you use the Section 184 loan. Your Tribe might have a program to cover your entire down payment if you use this program. Check with your Tribe.
Related: Section 184 Loan Closing Costs
Upfront mortgage insurance: Section 184 is better
Section 184 is the winner in this category. It requires an upfront mortgage insurance fee or “funding fee” of 1.5% of the loan amount, compared to FHA’s 1.75%.
This fee can be added to the loan amount for both loan types.
For a $250,000 loan, Section 184 will add $3,750 to the loan amount upfront. FHA will add $4,375.
There’s not a huge difference here, but every penny counts when you’re buying a home.
Tip: Use this Section 184 Loan Calculator to estimate your mortgage insurance.
Monthly mortgage insurance: Section 184 is better
While FHA isn’t a bad loan, it sure is not doing well against Section 184 so far. And it won’t gain any ground with monthly mortgage insurance.
FHA’s mortgage insurance rate is 0.85% of the loan amount per year. Section 184? Just 0.25%.
|Loan Amount||Section 184 monthly mortgage insurance||FHA monthly mortgage insurance|
Tip: On a $400,000 loan, a homebuyer saves $200 per month by using Section 184 over FHA.
Mortgage Rates: Toss-up
Section 184 and FHA could have similar loan rates, but in some cases, Section 184 loan rates might be better. Even if FHA comes with slightly better rates, Section 184’s lower mortgage insurance will probably make it less expensive overall.
Buy a home on or off the reservation: Section 184 is better
There’s no surprise here. The Section 184 Loan was designed from the ground up to be used on trust land.
Remember, though, that it does not have to be used on the Reservation. It can be used in any state or county that is approved for Section 184 loans (which is most of the U.S.). The property does not have to be near or even in the same state as your Tribe.
FHA loans can’t be used on Reservation land at all, making Section 184 the clear winner in this category.
Documentation and loan complexity: FHA is better
There are fewer “hoops” to jump through to get an FHA loan (as reported in a few Section 184 Loan reviews). This is because Native and non-Native buyers can use it. There are no special requirements and it’s available to nearly everyone.
Because Section 184 is only for Native buyers, you have to:
- Prove enrollment with a federally-recognized Tribe
- Ensure the Tribe has to be approved for Section 184 with HUD
- Work with BIA and HUD for property history if buying on trust lands
While the benefits of Section 184 are many, they do take more legwork than FHA.
Geographic availability: FHA is better
FHA is available nationwide with no exceptions. However, there are 14 states in which Section 184 loans are available only in select counties and 11 additional states where the program is completely unavailable.
Twenty-four states are fully approved.
Credit Score: Section 184 is better
Section 184 Loans have no minimum credit score. So a lender can consider your application even with a very low score.
FHA loans require a 580 score to qualify for 3.5% down and a 500 score for 10% down.
Both loan types accept non-traditional credit, where the lender looks at rent history, utility payments, and other non-debt sources to verify creditworthiness.
Finding a lender: FHA is better
There are about 140 Section 184 Loan lenders nationwide that are approved for Section 184 Loans. There are thousands of FHA lenders.
But having more than 100 lenders to choose from is far from limiting. Most homebuyers call just 3-4 lenders, even for FHA loans. Many buyers contact just one. There are likely enough lenders in your state to compare, which is all that you need.
Tribe requirements: FHA is better
You need to meet two major Tribal requirements for Section 184:
- You must document your Tribal membership
- The Tribe must be approved by HUD
Most applicants can prove they are an enrolled member of a Tribe. You can use your Tribal ID card.
The second requirement is harder. The Tribe must have already received approval from HUD. If not, it’s unlikely it can be approved before your loan closing. Consider FHA if your Tribe is not HUD-approved.
Which is better: FHA or Section 184?
For most Native Americans, the Section 184 Loan is better, despite some complex aspects of it.
If you’re willing to do a little more work upfront, you can enjoy the huge benefits of Section 184 for years to come.