March 4, 2011
In a recent blog post, we discussed the basics of the FHA 203(h) loan, which insures mortgages taken out by people who have lost property in a major disaster.
The FHA 203(h) program allows FHA-qualified lenders to offer FHA loans to specifically to those who have either lost their homes in the disaster or have had extensive damage to the home. The FHA rules for 203(h) loans say, “Individuals are eligible for this program if their homes are located in an area that was designated by the President as a disaster area…(these) mortgages may be used to finance the purchase or reconstruction of a one-family home that will be the principal residence of the homeowner.”
There are important things to remember about 203(h) loans. Some financial institutions instruct their lenders to reference official government websites such as FEMA.gov when considering applicants for a 203(h) loan. An FHA loan applicant living in an area that has recently been declared a federal disaster area but has not received an official update may experience a small delay until the official word has been given on sites like http://www.fema.gov/news/disasters.fema or notification comes from the FHA itself.
Some lenders may require proof that a home has been destroyed or damaged in the disaster. Such proof may include insurance reports or appraisal paperwork. These requirements may vary depending on the lender.
FHA 203(h) loans are no-downpayment mortgages and borrowers may apply for 100% financing of the loan. The FHA requirements for these home loans also includes, “Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a 6 percent limitation on seller concessions.”
FHA 203 (h) loans for disaster victims require mortgage insurance, just like many other FHA home loans. The up-front mortgage insurance premium may be financed, but borrowers should prepare to budget for monthly premiums which are added to the monthly mortgage payment. 203(h) loans are similar to other FHA loan products in that there are limits on some fees and charges the lender may issue in connection with the loan.
203(h) loans are different than other FHA mortgages because of a one-year time limit on the application process, and due to the requirement that borrowers must be applying for a home loan to repair or replace one affected in an officially declared federal disaster area (as designated by the President). But in many other ways the 203(h) loan resembles the FHA 203(b), which is the mortgage insurance program for one to four family homes.
The FHA 203(h) loan program is administered by Direct Endorsement, “which authorizes (FHA-approved lenders) to consider applications without submitting paperwork to HUD. Mortgage insurance processing and administration for this and other FHA single family mortgage insurance products are handled through HUD’s Homeownership Centers.”
The HUD Homeownership Center nearest to the declared disaster area would likely be the one to contact for more information on the 203(h) program including information on referrals to an FHA-approved lender.
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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