Did you know the FHA offers a type of home loan specifically for those recovering from a disaster? The FHA 203h loan is described in HUD 4000.1 (the FHA loan rulebook for Single Family Mortgage loans and refinance loans) as follows:
“Section 203(h) of the National Housing Act authorizes FHA to insure Mortgages to victims of a Presidentially-Declared Major Disaster Area (PDMDA) for the purchase or reconstruction of a Single Family Property. Mortgages to be insured under Section 203(h) must be processed and underwritten in accordance with the regulations and requirements applicable to the 203(b) program.”
Borrowers must have a minimum FICO score of 500 to qualify under FHA loan guidelines, and lender standards may also apply. The FHA 203h loan rules include the following for eligibility.
“The previous residence (owned or rented) must have been located in a PDMDA 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.”
These loans are for principal residences only-no time shares, vacation homes or other non-primary residences. There is an occupancy requirement for the FHA 203h.
No down payment is required under this program.
Where credit issues are concerned, HUD 4000.1 informs the lender, “…for Borrowers with derogatory credit, the Mortgagee may consider the Borrower a satisfactory credit risk if the credit report indicates satisfactory credit prior to a disaster, and any derogatory credit subsequent to the date of the disaster is related to the effects of the disaster.”
In the wake of a natural disaster, employment and income issues may arise due to flood damage. The lender is instructed, “If prior employment cannot be verified because records were destroyed by the disaster, and the Borrower is in the same/similar field, then FHA will accept W-2s and tax returns from the Internal Revenue Service (IRS) to confirm prior employment and income.
The Mortgagee may also include short-term employment obtained following the disaster in the calculation of Effective Income.”
As you can see, certain allowances are made in the loan application process to deal with the after effects of the disaster, but the borrower is still required to furnish some material in writing such as relevant tax documents mentioned above. Lenders may have additional requirements that will need to be discussed in order to proceed with the loan application.
In general terms only, borrowers have up to one year from the date the disaster area was declared, but borrowers who need this type of loan should discuss their needs with a participating FHA loan officer as soon as possible to avoid delays or complications in the application process.
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