What is the FHA 203(h)?
This is a specialty FHA loan program that provides up to 100% financing to help victims of disasters purchase new properties or rebuild after their homes have been substantially damaged.
In 2019 there were over 100 disaster declarations according to data from FEMA, the Federal Emergency Management Agency. Causes included severe winter storms, hurricanes, tornados, flooding, wildfires, and mudslides, among others.
FHA 203(h) Basics
- For the purchase or reconstruction of owner-occupied single family homes.
- Up to 100 percent financing available.
- Seller paid closing costs permitted, up to 6 percent.
- Credit will be manually underwritten. Late payments may be ignored from the underwriting analysis if they take place after the date of the disaster and are found to have been caused by the displacement.
- Fully Amortizing Fixed Rate.
- 10 year, 15 year, 20 year, 25 year, and 30 year term options.
- Single Family Residence, Manufactured, FHA Approved Condos, PUDs.
- Primary Residence Only.
What are the benefits?
- Available to renters as well as homeowners.
- Renters who are displaced by a disaster may be eligible to purchase a new home with 100% financing through this program, and exempt from the 3.5% down payment requirement that comes with the standard FHA loan.
- Does not need to be used right away.
- In the days and weeks immediately following a disaster it may not be possible or prudent to focus on the next steps towards establishing long term housing or homeownership. Thankfully, eligibility for this program begins as soon as the US President declares the disaster, and remains for one year from that date of declaration.
- Can choose to rebuild or move on.
- Financing can be used to either rebuild a home that was destroyed, or to buy a new property.
Who is eligible for an FHA Disaster Victim Mortgage?
To qualify for this program the borrower’s home must have been destroyed or severely damaged and be located within a presidentially declared disaster area. The previous home may have been owned or rented, and the damage must be extensive enough that it must be replaced, rather than simply repaired.
It is still necessary for the borrower to be approved for the new loan, and to demonstrate that it will be affordable. Eligibility will be determined by examining the borrowers’ income, assets, liabilities, and credit history and score, as well as the market value and condition of the property to be financed. When rebuilding, the value taken into consideration will be the amount that the home will be worth in the current market once it is complete.
Some of the additional requirements include:
- Borrower must intend to live in the home as his or her primary residence
- The amount borrowed must be within FHA loan limits which vary by county and are higher in parts of the country where real estate is more expensive
- 580 minimum FICO score
Scenarios where the FHA 203(h) may be a good option:
An FHA disaster victim mortgage can be an excellent option when a home located in a disaster area has been destroyed.
Events that can be declared a major disaster include:
- Severe Storm
- High Water
- Wind Driven Water
- Tidal Wave
- Volcanic Eruption
In the immediate aftermath victims are likely to seek temporary housing such as in an emergency shelter, in a hotel or rental home, or by staying with a friend or family member. In the short term the focus will be on re-establishing their own safety and that of their loved ones. Once the situation is stable attention can be given to figuring out where to live long term.
Homeowners whose homes have been destroyed may choose to rebuild. The FHA 203(h) offers one of very few 100% financing options for home construction. Another option, available to both homeowners and renters who have been displaced, is to purchase a new home.
This program benefits not only homeowners but communities as well. When a major disaster hits an area recovery can take a long time. When residents choose to leave and settle somewhere else this can drastically slow recovery. Encouraging victims to remain, and commit to rebuilding helps in many different ways.
Local businesses can continue to operate as they retain access to employees and customers. Area schools have higher enrollment which means greater funding. In addition, a sense of resiliency and pride in the community is fostered.
Buying a home with an FHA 203(h) home loan
This program can be used by first time home buyers or existing homeowners to purchase a new property with no money down. One of the few 100% purchase financing options available, this makes it easier for victims of disasters to become homeowners and have a safe, permanent place to live.
FHA 203(h) Refinancing
There is no traditional refinancing option, but existing homeowners can choose to rebuild a home that was destroyed on the lot they currently own.
Additional Programs to Consider
When a borrower doesn’t qualify for an FHA 203(h) loan, or this program doesn’t meet the needs of their scenario, here are a few other products that may be a good fit:
- To finance a home purchase and renovations to the property: FHA 203(k) Standard Loan
- For zero money down options: VA Loan, USDA Rural Housing Mortgage
- A low down payment mortgage without the displacement requirement: FHA 203(b) Standard Loan