What is an FHA 203h Loan?
Did you know the FHA offers 203h mortgages, a type of home loan specifically for those recuperating from a disaster?
They are loans made under Section 203(h) of the National Housing Act and supported by the Federal Housing Administration. FHA 203(h) loans extend assistance to victims of natural disasters, helping them rebuild their existing homes or buy new ones.
As the 203(h) program is intended for helping disaster victims recover once they can, it’s got more relaxed guidelines and a fast application, which may be 30 to 90 days. Disaster victims with late debt payments after the disaster may apply.
Presidential Declared Major Disaster Area
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 qualify under FHA loan guidelines, and any additional overlays imposed by the lenders. The FHA 203h loan rules include the following for eligibility.
- The buyer’s home (owned or rented) must have been located in a PDMDA and destroyed or damaged to such an extent that reconstruction or replacement is necessary.
- The purchased property must be a Single Family Property or a unit in a FHA-approved Condominium Project.
- These loans are for principal residences only!
- The buyer must occupy the home.
- Short-term employment obtained following the disaster in the calculation of Effective Income.
- Borrowers have up to one year from the date the disaster area was declared to apply for a loan.
No down payment is required under this program
With the 203h loan program, the regular 3.5% downpayment required for an FHA loan is waived.
If the no downpayment option is combined with seller and lender contributions, this could help the buyer get into their new home with virtually no money down and with almost $0 out of pocket for closing costs.