VA Direct Loans for Native Americans

Changes to the VA loan program that took effect on January 1, 2020, made VA Direct Loans easier for eligible Native American veterans to use. These updates eliminated loan limits and expanded funding fee exemptions for certain borrowers.

Several changes directly affect the Native American Direct Loan (NADL) program, including:

• Equal funding fees for Guard, Reserve, and active-duty borrowers
• Funding fee waivers for Purple Heart recipients
• Removal of conforming loan limits for VA loans
• Elimination of the previous $80,000 loan cap for NADL borrowers

What Are VA Direct Loans?

The Native American Direct Loan (NADL) program allows eligible Native American veterans to use their VA loan benefits to purchase, build, or refinance homes located on federal trust land.

Unlike most VA mortgages, which are issued by private lenders, NADL loans are provided directly by the Department of Veterans Affairs.

Most veterans obtain VA loans through participating lenders such as banks, credit unions, or mortgage companies. However, the NADL program bypasses private lenders and provides financing directly from the VA.

What Can Direct Loans Be Used To Do?

You can buy, refinance, build, or improve a home using a Direct Loan. However, the home must be located on tribal land.

What Are Federal Trust Lands?

Federal trust lands are lands held by the U.S. government in trust for Native American tribes. These lands fall under tribal authority and often qualify for federal programs designed to support Native communities.

Programs such as the VA Native American Direct Loan are specifically designed for homeownership on these lands.

Benefits Of The Native American Direct Loan

Eligible borrowers may receive several advantages through the NADL program, including:

• No down payment
• No private mortgage insurance
• Low interest rates
• Low closing costs
• No early payoff penalty
• Fixed-rate 30-year mortgages
• Funding fee waivers for disabled veterans
• Ability to reuse the benefit

Who May Apply For A VA Direct Loan?

To qualify, applicants must:

• Meet VA service requirements
• Obtain a Certificate of Eligibility (COE)
• Have sufficient VA loan entitlement
• Purchase, build, or improve a home on federally recognized trust land

The program may also apply to properties on allotted lands, Alaska Native corporation lands, and certain Pacific Island territories.

Who May Not Use A VA Native American Direct Loan

The NADL program cannot be used for homes located outside federal trust land or other eligible tribal lands.

Borrowers who wish to purchase homes outside these areas must instead apply for a traditional VA loan through a private lender.

How To Apply For A Direct Loan

It is first required that you determine whether or not the tribe has a Memorandum of Understanding on file with the federal government. The Department of Veterans Affairs has an interactive map you can use to determine which tribes have an MOU on file.

You will also need contact information for the Regional Loan Center of jurisdiction over your potential direct loan. Call 1-877-827-3702 to get assistance with the initial paperwork, requirements, and further information once you are ready to move forward. You will be given instructions on where to download or complete the initial forms and, where required, submit your Certificate of Eligibility information.

Rules You Should Know About Applying For A Native American Direct Loan

Before applying for a Native American Direct Loan, borrowers must understand several program requirements, including agreements between tribal governments and the Department of Veterans Affairs.

The Memorandum Of Understanding Requirement

The Native American Direct Loan (NADL) program requires that the tribal government where the property is located has signed a Memorandum of Understanding (MOU) with the Secretary of Veterans Affairs.

The MOU establishes the conditions under which the VA loan program can operate on that tribe’s trust lands. Without an approved MOU, the NADL program cannot be used for property located on that land.

What Is Required for a Tribal MOU?

To participate in the NADL program, tribal governments must sign an agreement with the federal government outlining how property rights and loan protections will be handled.

This agreement establishes procedures for:

• Conveying leasehold interests used as loan collateral
• Foreclosure processes if a borrower defaults
• Eviction procedures when required
• Resale of the property or leasehold interest

These provisions ensure lenders and federal agencies can enforce loan terms while respecting tribal authority.

For Tribes Without A Current MOU

If a tribe does not currently have an MOU with the VA, tribal officials can contact the appropriate Regional Loan Center to begin the process.

Borrowers interested in purchasing property on tribal land without an existing MOU should also contact the VA for guidance on available options.

VA Loan Occupancy Rules

The VA official site states that borrowers eligible to apply for a VA Direct Loan must meet the same occupancy requirements as a typical VA mortgage.

That means at least one borrower obligated on the mortgage will occupy the property as a primary residence, and the home cannot be used as an occasional-occupancy property, such as a timeshare or vacation home.

Borrowers Must Financially Qualify

Like traditional VA loans, NADL applicants must meet lender qualification standards. Borrowers must demonstrate sufficient income, creditworthiness, and ability to repay the mortgage.

VA Loan Funding Fees Apply

Native American Direct Loans include the standard VA funding fee, which may be paid up front or financed into the loan.

However, some borrowers are exempt, including:

• Veterans receiving VA disability compensation
• Veterans are eligible for disability compensation, but receive retirement or active-duty pay instead
• Surviving spouses of service members who died in service or from service-related causes
• Active-duty Purple Heart recipients who provide proof before closing

VA Loan Funding Fee Refunds

Borrowers awaiting a VA disability determination may be required to pay the funding fee at closing.

If the VA later determines the borrower qualifies for a funding fee exemption, they may apply for a refund of the fee. These refunds are not automatic and must be requested through the VA.

Restrictions On The Native American Direct Loan

NADL loans can only be used for primary residences that qualify as real property.

The loan cannot be used for:

• Commercial or primarily non-residential properties
• Recreational vehicles
• Houseboats
• Mobile homes not permanently affixed to a foundation

Refinancing With A Native American Direct Loan

Borrowers may refinance an existing mortgage using a Native American Direct Loan. However, the existing loan must be brought current before refinancing, either by paying missed payments or including them in the new loan balance where permitted.

Borrowers may sell or transfer the property at any time, subject to applicable tribal or territorial regulations.

Cash Back At Closing Time

VA Direct Loans follow the same rules as other VA mortgages regarding cash back at closing.

Borrowers generally cannot receive cash back, except for legitimate refunds allowed under VA loan guidelines. Cash-back proceeds are typically only permitted in transactions specifically designed for that purpose, such as VA cash-out refinances.