Native American New Construction Home Loan
The Native American Section 184 Construction Loan is a One-time close program that allows the borrower to lock in their construction loan and permanent all with in one transaction. So the borrower has one set of closing cost and is able to lock their permanent rate at the time of close not when the home is completed. This is a huge benefit since the mortgage rates have started to increase. The borrower can purchase the land simultaneously with only 2.25% down for the entire cost of the project. (Manufactured Home Acceptable)
The Section 184 single close construction or rehabilitation loan is a mortgage that includes all construction or rehabilitation costs, a contingency reserve, inspection/title fees and up to six mortgage payments.
At loan closing the funds required for construction are placed in a construction escrow account and advanced as the construction proceeds. The escrow account can include funds to cover up to six mortgage payments, including principal, interest, taxes, and insurance (PITI) to assist the borrower in making monthly payments during the construction period.
- Construction must be completed within:
- 6 months for site built homes
- 4 months for manufactured or modular homes
- b. Rehabilitation Loan.
At loan closing the funds set aside for rehabilitation are placed in a rehabilitation escrow account and advanced as the rehabilitation proceeds. The escrow account may include funds to cover up to four mortgage payments, including principal, interest, taxes, and insurance (PITI) to assist the borrower in making monthly payments during the rehabilitation period. The after improved value (as determined by the appraiser) must equal or exceed rehabilitation (and acquisition) in order to establish a single close rehabilitation loan. The costs included in the financed loan can include:
- Repair items required by the appraiser;
- Permanent changes/additions requested by the borrower but not a requirement of the appraisal.
- Rehabilitation must be completed within 4 months
- Construction Cost Estimate. Loan applications include a cost breakdown for all construction. The estimates used must include labor and materials sufficient to complete the work. All work must be done by a state licensed or tribal approved contractor. All costs to construct/bids must be signed by contractor and borrower.
The appraised value is an after improved value based on the plans, specifications, detailed costs of construction/rehabilitation and acquisition costs.
Construction must commence within 30 days after loan closing. The construction loan agreement that references the final commencement date for construction must be executed at loan closing and included with the endorsement/guarantee package.
The prepaid hazard insurance must be calculated based on the completed property (land and dwelling).
The prepaid property taxes must be calculated based on the completed property (land and dwelling) to ensure that the escrow funds are sufficient.
Construction Escrow Account. The construction/rehabilitation escrow funds must be deposited in an insured interest bearing account in the name of the borrower.
CONSTRUCTION/REHABILITATION BUILDER REQUIREMENTS
The Office of Loan Guarantee permits the borrower to select their own builder (or housing dealer) for all single close construction or rehabilitation loans. All builders (including an owner builder) participating in this Section 184 loan program must be either state licensed or approved by the tribe. The lender must submit a copy of the builder’s current license or tribal approval with the underwriting binder. The lender’s mortgage file must contain sufficient information to document the qualifications of the builder. The builder must:
- 1. Have a current state license or tribal approval
- 2. Be in good standing will all trade references as documented by a credit report on the building company.
- 3. Have current working capital and/or credit line sufficient to cover 150% of the largest anticipated scheduled draw amount.
- 4. Trade references with contact information
- 5. Have experience in similar sized projects
- 6. Bank references including lines of credit