My name is Harrison and I am from Tulsa, Oklahoma. I am looking to purchase my first property, 2-4 units, utilizing the "house hacking" strategy. Doing some research on financing, I discovered the HUD Section 184 loan for Native Americans. The loan offers a low 2.25% down payment, structured to purchase and finance the improvements "rehab" in single closing, and with regular 30 year fixed rates available. Being a Cherokee member myself, this seems to be an great way to get started in my real estate journey.
Has anyone ever used a Section 184 loan? If so, what was your experience like? Unapparent challenges, pitfalls, disadvantages, etc.? Also, any general advice for a Newbie is greatly appreciated.
@Harrison Moseby thanks for posting! The 184 loan is a good loan to take advantage of but it cannot be used on 2-4 unit properties unfortunately. It's only designed for Single Family Homes. That doesn't mean there's not any good options for you though. FHA only needs 3.5%, and HomePossible only need 5% for 2-4 unit properties. And both are reasonable options.
I wanted to provide the official link to the Section 184 loans in case any other people came searching for more information on this loan type: SECTION 184 INDIAN HOME LOAN GUARANTEE PROGRAM
Currently Fairway Mortgage is the #1 lender in the country for this loan type but the site will tell you other lenders who are approved as well.
@Andrew Postell thanks for the response!
The website says "The loan is limited to single-family housing (1-4 units)". I am under the impression that a 2plex, 3plex, and 4plex are considered SFH (1-4 units). Whereas 5+ units are considered multifamily. Is that incorrect? Hope for some clarification on that.
@Harrison Moseby Well....all the more reason to work with one of those lenders on the list. Sorry for the confusion here. It does actually read...."only available for single family residences" in the guidelines....but further down defines single family residences as 1-4 unit properties. Sorry for the confusion.
@Andrew Postell fantastic! Thanks for confirming
@Harrison Moseby my cousin used it for his first home. I think he used another program through the Cherokee's also. They gave him 20k for a down payment. He had to go through a few days of classes and if he sells it in ten years some of the money will have to be returned. He bought a sfh though so I'm not sure if a small multi would qualify. It's definitely worth looking into. If you go to the Cherokee web site they have a number you can call and they can give you the exact info you need.
A SFH is classified by HUD as a 1-4 unit building. So, Single Family as we would typically consider is eligible, as well as duplex, triplex and quadplex.
I have a house I'm living in currently under Section 184 and thought about the duplex route for myself, but there weren't any that I wanted to try and take where I was, and with the budget I wanted. I suppose you could go the BRRR route and convert a 'SFH' into a Duplex or what-have-you and cover it as a Rehab to still qualify for the Section 184, but you would want to make sure the zoning allows for that type of residence in your neighborhood.
I think there's a list of qualified lenders out there, but I can offer up a few if you really need them. I'm in OKC area but from Tulsa. The servicer I used is based out of Tulsa, but I would haggle the rate with him since I think it was a little on the high side.
The advantages are almost as good as a VA loan:
2.25%, interest rate based on market instead of credit score, manual underwriting, and VERY low PMI that automatically falls off after you hit the 80% LTV. Regular FHA has permanent PMI unless you refinance which one of my friends is going through right now with his FHA loan (NOT Section 184). Just as an example of the PMI mine is like, maybe $30 from a home loan of $155k with 2.25% down. It's basically not even worth worrying about as far as I'm concerned.
If you have any questions about the process, don't hesitate to ask. It's pretty easy as most of it is on the lender side. You will have to sign a ridiculous amount of paperwork at closing, though. Also, you can receive gifts for the down payment (like your mom gave you $1000 for the down payment) which is not something that's available with conventional loans, which is nice if you need it. I didn't, but it's there in case you do. If you go to the HUD website it tells you everything you need to know, including was is defined as a SFH for a Section 184.
Good luck! It's a great program!
You may also want to reach out to Bank 2 in OKC. They have a large Native American client base and originate quite a few 184 loans.
Does anyone know if this program has similar owner-occupancy requirements to an FHA loan? To my understanding, it's kosher to utilize the FHA loan program, live in the property for 12 months, and then move out and use it as a rental. I assume this program has its own set of requirements.
@Harrison Moseby did you find a good lender for this one? I'm after the same loan. Many lenders have overlays against 2-4 units for Section 184. HUD allows it but the lenders don't. Let me know what you've found out!
@Harrison Moseby if you're still interested in buying a multi family (2-4) with a HUD 184 loan, it is totally doable. In February, I purchased a duplex using the the 184 loan. You will be required to live in the residence for a year. You should expect to pay slightly more than other investors because the headaches that the HUD loans cause sellers. Make sure that you shop around for 184 lenders. Some lenders, banks specifically, overlay their own underwriting with HUD's. This means more hoops to jump through and often times more money down. Your best bet might be a mortgage broker that does 184 loans. Ask around for other's 184 lender experience. Several tribes also offer down payment grants for first time homebuyers. It would be worth looking into these programs. These people will likely be able to point you towards a lender.