August 25, 2017
What if my home was damaged in a natural disaster? This is an important question. The answers, depending on circumstances, may affect FHA borrowers and non-FHA borrowers alike.
The FHA and HUD official site discusses a variety of remedies for those who have experienced a natural disaster. Some of the most important advice? Contact your lender, your insurance agent, and FEMA as soon as possible after the disaster to make arrangements regarding FHA loan forbearance, foreclosure avoidance, and federal assistance. For borrowers with conventional mortgages, different options and requirements may apply.
It is not safe to assume that any of the above is automatic-in most cases help must be applied for, especially where FEMA is concerned. Borrowers should also not allow themselves to be pressured into quick insurance settlements.
You will need to determine the nature and extent of any damage to your property from a hurricane, tropical storm, tornado, mudslide, flood, etc.
FHA loan rules state that for federally declared natural disaster areas, a 90-day moratorium on foreclosure activity is requested by the FHA/HUD. This may be of help to some who need it, but ONLY in the the locations declared as federal disaster areas.
FHA loans are available for those who need to make repairs to a home damaged by a natural disaster. FHA 203(k) rehab loans are available as “forward” mortgages and also as refinance loans-the FHA 203(k) loan has options for small projects and for more complex repair projects.
These loans are NOT dependent on whether or not you have experienced a natural disaster or are living in a federally-declared disaster area.
The FHA 203(h) rehab loan IS dependent on being in a federal disaster area, and offers similar financial resources to the 203(k) loan. In fact, FHA 203(h) loans can be used in conjunction with 203(k) loans and other programs. FHA 203(h) loans must be given case numbers “within one year of the date” the federal disaster area is declared, unless “an additional period of eligibility is provided”.
FHA 203(h) loans are described on the FHA/HUD official site with a very specific application guideline. “The purchased or reconstructed Property must be a Single Family Property or a unit in an FHA-approved Condominium Project.”
For FHA 203(h) loans, you must be using the funds to repair your primary residence. There is no down payment required with FHA 203(h) rehab loans, and according to HUD 4000.1, “The maximum Loan-to-Value (LTV) ratio limit is 100 percent of the Adjusted Value. If a 203(k) is used in conjunction with a 203(h), the 203(k) LTV applies”. Speak to your loan officer about your recovery options if you are affected by a natural disaster.