Tips for indigenous home buyers

adminonFebruary 13, 2023February 19, 2023Leave a Comment

tips for indigenous home buyers

If you’re Native American, Alaska Native, or a Native Hawaiian and looking to buy, rehabilitate, or build a home, there are special options to help you get a mortgage and save money. Here are some tips for your particular home-buying journey.

Get to know Section 184

The U.S. Department of Housing and Urban Development created the Section 184 Indian Housing Loan Guarantee Program to help Native Americans purchase homes. Just like the VA loan program, Section 184 guarantees a lender that its investment will be repaid in full in the event of foreclosure.

The other benefits of Section 184 loans are that HUD plays watchdog for you. HUD ensures that you’re finding the best loan options and there are flexible application requirements to make it easier to get approved.

Who’s eligible?

The Section 184 program is designed for eligible tribes, Indian Housing Authorities, and Native American individuals and families wanting to own a home on trust land or land located in an approved Indian or Alaska Native area. Native Hawaiians who are eligible to reside on Hawaiian Home Lands are eligible for a similar program under Section 184A, the Native Hawaiian Housing Loan Guarantee.

What limitations are there?

There are some restrictions. Only single-family homes are eligible; your mortgage must be fixed-rate for 30 years or less (other types of mortgages are not eligible); and when taking out a mortgage, you must apply with a HUD-approved Section 184 lender.

In some states, the rules have expanded to include some land beyond established tribal lands, so check out HUD’s list of guidelines for each state. Some states are even “full approval states,” meaning that any county in the state will qualify for Section 184 financing.

How much down payment is required?

For loans under $50,000, you’ll need to come up with a down payment of 1.25% of the purchase price. 2.25% is required for loans over $50,000. The money can come from your savings, investments, or a gift from a family member.

Which lenders work with Section 184?

While many mortgage lenders are on HUD’s approved list, some are more experienced with Section 184 than others. 1st Tribal Lending, for example, specializes in buyers looking to buy on or off the reservation, purchase manufactured or new construction homes, or refinancing.

Options beyond Section 184

Section 184 may be the most common program to help Indigenous home buyers, but it’s not the only one. There are also organizations dedicated to improving existing housing conditions on reservations.

Enterprise

One such group is Enterprise, which works with lenders and other businesses that finance, develop, manage, and build affordable housing. The organization recently developed new tools, such as a tribal leaders’ handbook on homeownership.

Federal Home Loan Banks

There’s also a private cooperative called Federal Home Loan Banks, which lends money to local lenders (banks, mortgage lenders) to help them invest in communities and buyers in need. FHL banks are located in 11 states and offer assistance through the organization’s Native American Homeownership Initiative.

Native American Direct Loan

If you’re a Native American who is also a veteran (or the spouse of a veteran), you may qualify for a loan through the Native American Direct Loan (NADL) program, which is backed by the U.S. Department of Veterans Affairs. These loans can be used to purchase, construct, or finance a home.

NADL loans have a low down payment requirement and sometimes require no down payment at all. Private mortgage insurance (PMI) is not required, and they offer lower closing costs than conventional loans. They can be used for homes on allotted lands, Alaska Native corporations, Pacific Island territories, or federally recognized trusts.

Housing grants for Native Americans

Unlike loans, housing grants do not have to be paid back. For Native Americans, there are grants to help you buy a house and grants to help you stay in a home.

If you live in a city, check with your local housing authority. If you’re on a reservation, check with your tribal office to see if there is grant money available. The website Grants for Native Americans has a list of popular grants for Native Americans for a variety of things like mortgage assistance, legal advice, help paying water and electric bills, and education. The grants are from private organizations, foundations, and nonprofits, as well as the federal government.

The Hawaii State Department of Hawaiian Home Lands receives funding for Native Hawaiian Housing Block Grant funds. These grants can cover eligible affordable housing for low-income Native Hawaiians who are eligible to live on Hawaiian homelands.

Couple looking at mortgage denial letter

The security and consistency of a fixed-rate mortgage can be comforting for homeowners, but sometimes, an adjustable-rate mortgage (ARM) is a better financial option. To refinance from a fixed to an ARM loan is somewhat risky, as you can never be sure how the market and your own financial situation will change. However, in specific circumstances, refinancing to an ARM could save you a lot of money by lowering your interest rate.

To decide whether you should refinance from an ARM to a fixed mortgage, you have to consider your own financial goals and your plan for the future. Of course, everyone’s situation is different, so only you know what your best option is. Here are five situations in which a refinance from a fixed to ARM loan makes sense.

1. You’re going to move in a few years.

ARMs offer an introductory period with an exceptionally low interest rate. In most cases, this low rate lasts for five years, but some lenders offer longer or shorter introductory periods. After your introductory rate ends, your interest may increase considerably. If you’re planning on moving before the end of the initial period, you don’t have to worry about the rate increase.

It can be an excellent idea to refinance from a fixed to ARM loan if you’re confident that you’ll be moving in the next few years. You get to take advantage of the low rate at first, and you’ll already be applying for a new mortgage by the time the rate changes.

Maybe you and your partner are planning on starting a family in a few years, so you know that you’ll be moving into a larger house. Perhaps you expect to move to a new city or state in the near future for a job opportunity. No matter the reasoning, homeowners who are sure that they’ll sell the property before their introductory rate ends can benefit from a refinance from fixed to ARM.

2. You’re going to pay off your home soon.

Just like selling your house allows you to avoid an interest rate increase, paying off the loan before the introductory period ends ensures that you won’t see your rate skyrocket.

You could benefit greatly from a refinance from fixed to ARM if you’re nearing the end of your mortgage repayment. Unless you already have an extremely low interest rate with your fixed mortgage, you’ll probably reduce your rate with an adjustable-rate mortgage refinance. Then, you can cut down on your interest payments while you pay off the remainder of your mortgage balance. A 15-year refinance is an excellent option in this situation because it further lowers your interest rate, allowing you to pay down the principal as quickly as possible.

Reducing your interest rate near the end of your loan doesn’t have as dramatic an impact as it does near the beginning. The balance is lower, so the debt won’t accumulate as much interest. However, every dollar counts when you’re paying off your home.

3. Your income will increase in the near future.

The uncertainty of an ARM is the biggest downside to this refinancing option. You know that you’ll get a low interest rate for the first few years, but it’s hard to predict how your monthly payment will change after that.

You might decide that a refinance from fixed to ARM is worthwhile if you expect your income to increase by the end of the introductory period. By the time the higher interest rate sets in, you’ll be bringing home more money and can handle the potential increase in your mortgage payment. For instance, this option might make sense if you’re completing a graduate degree that will increase your earning potential or if you’re on track for a promotion at your current workplace.

4. You’re expecting to refinance again.

You always have the option to refinance a second time after the introductory rate for your ARM ends. However, refinancing is time-consuming, so most homeowners don’t want to go through the experience multiple times in a decade. If you’re willing to refinance again, though, you could go back to a fixed-rate mortgage once you’re done with the introductory period of your ARM.

5. You want the lowest possible interest rate right now.

Paying off a mortgage is a long-term commitment, so you shouldn’t only think about your short-term needs. It can be risky to prioritize your current financial situation without planning ahead. However, there are plenty of reasons you’d want to reduce your monthly payment as much as possible.

For example, if you’re going through financial hardship, you might decide to refinance from a fixed to an ARM loan to lower your monthly payment. By cutting down on your expenses, you can reduce your risk of foreclosure. Then, once you’re back on your feet, you can reevaluate your situation.

What to expect with a fixed to ARM refinance

Most homeowners refinance from an ARM to a fixed loan, not from a fixed mortgage to an ARM. A fixed-rate mortgage is generally a better option for homeowners planning to grow roots and stay in their homes for a long time. It’s often a natural transition to refinance from an ARM to a fixed mortgage. However, because a refinance from fixed to ARM is less common, you might have a more challenging time finding a lender.

A refinance from fixed to ARM is possible with American Financing. We are equipped to understand and support your unique situation, and we can offer a loan that best meets your needs. In many ways, the process of refinancing is the same as the process of applying for your original mortgage. If you can collect your proof of income, tax information, and other financial documents, you should be able to get approved for a refinance.

You might decide to refinance from a fixed to an ARM loan if you anticipate a change in your near future. Whether you’re going to move, pay off your mortgage, or refinance again in a few years, you could benefit from the low introductory rate of an ARM in the meantime. If you’re interested in this form of refinancing, you can contact us today or schedule an appointment to discuss your options.

Man working on a laptop in an office

It’s been a roller coaster ride for the mortgage industry since the start of the COVID19 pandemic — and that’s putting it lightly. Borrowers saw incredibly low rates increase by nearly a full point in a matter of weeks. Granted, interest rates leveled out shortly thereafter and remain favorable for borrowers.

So then why are mortgage experts concerned about the industry if rates are still low? It all ties back to the coronavirus, also known as COVID-19. Things are changing with mortgages, whether it be credit score requirements, loan program requirements, or loan program availability.

We’ve put together this FAQ page to help people understand the changes and know their loan may be impacted.

What’s the difference between forbearance and deferred payment?

Maybe you’ve reached the point where you can’t make your mortgage payments. So you look up ways to avoid foreclosure and come up across two options: forbearance and deferred payments. Contrary to popular belief, these are not interchangeable and can have totally different impacts on your financial situation.

Payment deferment is just like it sounds. You put off a payment until a later date so you can have some immediate relief.

While it technically involves payment deferment, mortgage forbearance is more complicated. Say you spoke with your loan servicer and agreed to a 90-day forbearance period. The good thing about mortgage forbearance is that you can remain in your home even though you can’t make your regular payments.

What a lot of borrowers don’t realize, though, is that they must pay back the full amount at once or increase future payments when their forbearance period ends. Not surprisingly, these programs are often more detrimental than helpful to buyers.

Please be aware that American Financing is not a mortgage servicer, so we do not collect your payments nor do we have the ability to grant you forbearance or the option to defer payments. Please contact your loan servicer for further direction. Those who do choose forbearance may not be eligible to refinance for a year.

*Note that the rules for mortgage relief due to COVID-19 may be different. It also depends on who is backing your loan, such as Freddie Mac or Fannie Mae.

How did COVID-19 affect the mortgage industry?

We’ll try to be as succinct as possible with this question. You may remember looking at your retirement account in February and seeing a sharp decline in performance. It was at this time that the coronavirus started to spread rapidly, causing investors to rebalance their portfolios to bonds and mortgage-backed securities (MBS).

In a domino effect, mortgage rates dropped to historic lows and lenders were flooded with refinance applications. Unfortunately, some lenders struggled to keep up with the workload and had no choice but to raise rates. The simultaneous funding and selling of MBS proved to be disastrous for secondary markets and the industry as a whole. Such dropoff in Mortgage-Backed Securities led to a 1-2% rate increase in just several days.

Then came the social distancing orders. While the nation worked to stop the spread of COVID-19, millions of Americans were suddenly without a job as businesses closed and organizations laid off employees. Analysts quickly realized that homeowners without steady employment would struggle to stay current with their mortgage payments.

We’re going to stop here. The one positive thing worth sharing in this response is that we expect the Federal Reserve to keep rates low for the foreseeable future. Don’t be surprised if the real estate industry leads the road to recovery once the current wave of COVID-19 passes.

How will the credit score changes impact my loan?

More than 10 million Americans filed jobless claims in the last three weeks — and that is only going to increase. The widespread layoffs and reduced wages have investors questioning how borrowers will continue to make their mortgage payments. It’s why lenders are implementing stricter program requirements, including higher credit scores.

What does this mean for you? Depending on your credit score, your loan may be paused or dropped completely. Keep in mind that these changes apply to government loans such as FHA, VA, and USDA loans.

Just because you might not meet the credit requirements any longer doesn’t mean you can’t raise your score. Consider using this time to dispute any errors on your credit report and pay down debt. You can protect your finances, even amidst a pandemic.

What other changes to loan program requirements should I know about?

The industry is also making changes to loan-to-value requirements. In short, LTV compares the size of your mortgage to the home’s value. The new underwriting guidelines make it unlikely that lenders will move forward with high LTV loans.

Note: From what we’ve found, Fannie Mae and The Mortgage Reports have the most recent LTV and credit score info.

Which loan programs are no longer available during this time?

Many alternative loans, known as “non-QM mortgages,” are on hold. These include jumbo loans, bank statement loans, and high debt-ratio loans. We encourage borrowers who were recently approved for a non-QM mortgage to contact their lender for further guidance.

How can I get verification of employment if I’m not working?

Think back to when you first applied for a mortgage and you provided income documentation such as pay stubs and W-2s. Your lender will want to make sure you’re still employed right before closing with a verification of employment. But what happens with your mortgage if your workplace shut down or you were let go because of COVID-19?

The good news is that Freddie Mac and Fannie Mae will temporarily relax standards for VOE and property appraisals. So get in touch with your lender and see if there’s a way you can move forward with your loan.

It’s also worth mentioning that being laid off and being furloughed are not synonymous. According to HuffPost, a furlough is “a mandatory, temporary unpaid leave.” Someone who is laid off is no longer associated with their employer nor on their employer’s payroll.

How are appraisals being done now?

Lenders are shifting from in-person appraisals to desktop appraisals. Whereas a traditional appraisal relies on an inspection of the property, a desktop appraisal focuses on public records and multiple listing service information to gauge a property’s value.

Drive-by appraisals are fairly common these days due to COVID-19. That said, investors are requiring in-person inspections where a cash-out refinance is involved.

Borrowers should know that alternative appraisals are only available on certain loans. Check out this article from The Mortgage Reports for more information.

Are in-person closings still happening?

Not as much right now. Title companies throughout the country are offering a drive-thru closing option to home buyers. Some lenders are discussing the possibility of hybrid e-closings and drive-by notaries with borrowers. The National Association of Realtors (NAR) explains that not all states are on board yet, which is why you should ask your title company about possible alternatives.

What should I do if I want to buy a house?

Many Americans wanted to close on a house this spring. Frankly, you still might be able to if things start returning to normal in the coming weeks. But if you lost your job or can’t work for a while due to illness, it may be best to delay your home buying efforts.

Would I benefit from a refinance?

There are a number of factors to consider with a mortgage refinance at the moment. If you feel good about your job and have excellent credit, you may benefit from historically low rates.

Before you get started, be sure to consider how long you’ve been in your home and how much longer you plan to stay. Then, give a mortgage refinance calculator a try. See what your potential cost savings will be. If the numbers look good, give a mortgage consultant a call to see if you qualify under the market’s new loan requirements.

The timing right now works out fairly well given many of us are receiving a stimulus check soon. That kind of money can likely cover the closing costs of your refinance.