The FHA has a wide variety of home loan products, but it’s easy to assume that an FHA loan is just for people searching for their first home, trying to refinance, or looking to purchase another home after having sold their previous one. Did you know the FHA also provides home loans for victims of major disasters? An FHA mortgage program called Section 203(h) allows qualified lenders to offer FHA loans to those who lost their property in a major disaster and are in the process of buying a new home or rebuilding the old one.
To qualify for this loan, FHA borrowers must meet credit and eligibility requirements typical for any FHA loan program but there are additional qualifiers.
According to the FHA, “Individuals are eligible for this program if their homes are located in an area that was designated by the President as a disaster area and if their homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary. Insured mortgages may be used to finance the purchase or reconstruction of a one-family home that will be the principal residence of the homeowner.”
FHA Section 203(h) differs from other FHA loan products in other ways, including 100% financing with zero down payment. The FHA requirements also include stipulations about up-front payments. “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.”
Like other FHA loans, there are loan limits based on location, market conditions and other factors. Applicants can approach any FHA-approved lender for help with a Section 203(h) loan, but unlike other FHA loans, there is a time limit on Section 203(h) mortgages.
The borrower must be in an area officially designated as a disaster area by the President of the United States and applications must be submitted within a year of that declaration. The FHA requirements for Section 203(h) loans state, “Applications are made through an FHA approved lending institution, who make their requests through a provision known as “Direct Endorsement,” which authorizes them to consider applications without submitting paperwork to HUD.”