The VA home loan benefit typically allows military members with a minimum amount of qualifying service to apply for a zero-down mortgage with limits on certain closing costs, no penalty for early payoff, and the ability to refinance with a VA Streamline loan later on.
A typical VA home loan experience requires the borrower to apply for a VA Certificate of Eligibility, find a participating VA lender, and apply for the loan. VA applicants are required to credit-qualify for a mortgage the same as any other home loan program through VA loan applications are approved with more forgiving credit qualifications than some conventional loans.
For the most part, the Department of Veterans Affairs does not provide the loan funds for the VA loan program. That is usually true UNLESS the applicant is trying to get a special type of VA mortgage known as a Native American Direct Loan.
This benefit is offered to those with qualifying military service who are also eligible to buy real estate on tribal lands in America. Native American service members with rights to live on Native American trust land, also known as federal trust land, as the VA defines it, may apply for a VA Direct Loan where the Department of Veterans Affairs is the lender and underwriter.
How VA Native American Direct Loans (NADL) Work
The VA offers NADL to veterans who are Native American, and to non-native veterans who have a Native American spouse. These loans can be used to buy, build, or improve a property located on federal trust lands.
NADLs can be used to refinance an existing VA Native American Direct Loan and lower the interest rate on that loan according to the VA official site. These loans are only offered on tribal lands that have a current Memorandum of Understanding with the federal government.
Advantages of an NADL
Native American Direct Loans offered by the VA have advantages similar to typical VA mortgages. There is typically no down payment required, there are limits on closing costs for these loans and there is no mortgage insurance requirement.
VA NADLs are 30-year, fixed-interest rate mortgages. These loans are reusable, like typical VA home loans. You can buy, build, or renovate another home with a VA mortgage down the line as long as you meet the program requirements. VA loans typically have no loan limit for those who have 100% of their VA loan entitlement to use.
Applying for a VA Native American Direct Loan
To begin the application process for a VA NADL, you must apply for a VA Certificate of Eligibility, and contact the Department of Veterans Affairs to begin the NADL application process. You will want to contact your nearest VA Regional Loan Center, which you can locate using the VA official site.
These VA loans, like most VA mortgages, require payment of the VA loan funding fee unless the applicant is exempt because they receive or are eligible to receive VA compensation for service-connected medical issues.
If you are exempt from paying the fee for this reason you will need to have that information reflected in your records and on your VA Certificate of Eligibility. If you are awaiting a VA decision on a medical claim, you may be required to pay the fee upfront and apply for a refund later once your records show the VA rating.
Who Is Eligible for a VA NADL?
Native American veterans and non-Native American veterans married to Native American spouses may qualify for a VA NADL. All of the following must apply:
- The tribal government has a Memorandum of Understanding with the VA that outlines how the NADL program operates, and;
- You have a VA Certificate of Eligibility (COE), and;
- You qualify with your credit scores and other financials, and;
- You have income and employment that allows you to realistically afford the mortgage and;
- The home you purchase with a Native American Direct Loan is meant to be your primary residence or home address.
What to Do If Your Tribal Government Wants to Participate
If you want to buy a home on federal trust lands where the tribal government does not have a Memorandum of Understanding with the government for the NADL program, contact the Regional Loan Center of jurisdiction in your area.
What do these MOUs contain? Essentially they are agreements with the federal government outlining the terms and conditions under which the NADL program may operate on that federal trust land.
Here’s an excerpt from a VA template for the NADL MOUs. This is a portion of the agreement acknowledging that the tribe, “…has established standards and procedures that apply to the conveyance of a leasehold interest in real property” that would be used in NADL transaction by an American Indian borrower, “…including procedures for foreclosing the interest, eviction and procedures for resale of the lot or the dwelling (or both) purchased, constructed, rehabilitated or refinanced using the proceeds of the loan.” As you can see, MOUs contain technical details critical for the NADL program to operate properly.
What to Know About VA Native American Direct Loans
VA mortgages, including VA Native American Direct Loans, involve an application, credit check, and employment verification. You will be required to provide extensive personal information about your employment, income, and the future of both. The same as for typical VA mortgages, the borrower must be able to qualify for a loan with credit scores and repayment history among other variables.
Prepare for an NADL the same as you would for any other application for a large line of credit. You’ll want to lower your debt ratio, cut your credit card balances down to well below half the credit limit, and establish a record of on-time payments on all financial obligations. You should check your credit reports early and often, giving yourself plenty of time to address errors, identity theft, old information that should have dropped off your report ages ago, etc.
A Native American Direct Loan works much in the same way as other VA mortgages, but tribal agreements with the VA may feature nuances–you’ll want to ask specifically about how the NADL program differs from traditional VA mortgages. The VA does not, for example, advertise the availability of NADL cash-out refinancing on its official site. If you have a need to explore cash-out refinance options and own a home on federal trust land, you may need to contact a VA representative to learn what your options might be at application time.
Home loan rules and regulations are always subject to change. New legislation, changes in VA policy, changes in funding, and other variables may determine the future of some aspects of VA home loan programs including the NADL.
Being Eligible for a VA Loan: What It Does NOT Mean
Eligibility for the VA loan program does not mean automatic loan approval. All applicants must credit qualify for the loan and meet VA employment standards. You may find that two years of employment overall is a good rule of thumb for minimum time in the job market, though those two years do NOT have to be with the same employer.
When considering a zero-down VA mortgage of any kind, those who must pay the VA loan funding fee should know that making a down payment can reduce the cost of that fee. The VA lowers the funding fee for down payments up to 5% of the purchase price of the home, and also for down payments up to 10% of the loan amount.
Lowering your VA Loan Funding Fee means saving more on the upfront costs of the mortgage, assuming you choose not to finance it but to pay in cash. Financing the VA loan funding fee may increase the amount of your monthly mortgage payment, be sure to ask your loan officer how much and decide whether or not you can afford the increase.