November 13, 2017
Does FHA have a disaster loan program? The short answer is yes, and it is quite different than a standard FHA forward mortgage. The FHA 203(h) loan is available as a new purchase mortgage or a refinance loan.
In this case “new purchase” may lead some to believe you are only allowed to buy a new home with an FHA 203(h), but the reality is that you can use the 203(h) to rehab an existing damaged home, or purchase a replacement home.
FHA 203(h) Disaster Loans: Unique Requirements
FHA 203(h) disaster loans are only approved for those who are in federally-declared disaster areas. You cannot be approved for an FHA 203K(h) mortgage if you are not in a one of the official presidentially-declared federal disaster areas.
You can check the status of a city or county at the FEMA official site to see whether a declaration has been made for that specific area.
FHA 203(h) loans generally feature no FHA-required down payment. You will need to discuss your specific circumstances with a loan officer to see what is possible based on your circumstances.
Borrowers must have a minimum credit score of 500, according to FHA loan rules. Lender standards may also apply.
Among the unique requirements for these FHA loans, there’s also a time constraint. According to HUD 4000.1, “The FHA case number must be assigned within one year of the date the PDMDA is declared, unless an additional period of eligibility is provided”.
FHA Disaster Loan Requirements For Residences
FHA loan rules do not prevent a borrower from applying to borrower under the 203(h) program if the property they previously lived in was a rental unit. Consider these instructions to the lender found on page 397 of HUD 4000.1:
“The previous residence (owned or rented) must have been located in a (federal disaster area) and destroyed or damaged to such an extent that reconstruction or replacement is necessary. A list of the specified affected counties and cities and corresponding disaster declarations are provided by the Federal Emergency Management Agency (FEMA). The purchased or reconstructed Property must be a Single Family Property or a unit in an FHA-approved Condominium Project.”
FHA loan rules permit the borrower to purchase or rehab properties with as many as four units. However, the borrower MUST be an owner/occupier. Occupancy is a condition of loan approval.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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