203(h) Mortgage Insurance for Disaster Victims
FHA 203h provides invaluable assistance to disaster victims whose homes were destroyed or damaged to an extent where significant reconstruction or replacement is necessary. The 203h loan provides mortgage insurance to lenders against the risk of default on loans to qualifying disaster victims and, through this insurance, it is easier for victims to obtain mortgage loans.
If you are interested in FHA disaster relief loans, it is important to learn more about how the loan works, including who is considered eligible, the benefits of 203h, the drawbacks of 203h and how you can go about submitting an application. With a bit of knowhow, you can better prepare yourself in the event of a disaster, or lessen the hardships that you may be facing if a disaster has already occurred. To learn more about FHA 203h, review the information in the sections below.
What is an FHA disaster loan?
An FHA 203h loan may be beneficial to you if you have experienced the loss or severe damage of your home in an area that was designated by the President of the United States as a disaster area. This type of loan makes it easier for victims to qualify for a mortgage that can be used to purchase or reconstruct a single-family home that will be the victim’s principal residence, as the Federal Housing Administration (FHA) provides mortgage insurance that protects lenders from the risk of defaults on loans.
In order to obtain a FHA disaster relief loan, you must submit an application within one year from the date that the U.S. President declares an area a disaster zone. If you intend to learn how to apply for an FHA loan, know that you can choose to obtain a mortgage for the purchase of a home that is outside of the area where the disaster occurred.
The Benefits of FHA Disaster Relief Loans
An FHA disaster loan provides numerous benefits to disaster victims, especially individuals who are of low to moderate income levels. Benefits of this type of loan include, but are not limited to:
- The ability for disaster victims to rebuild a home that was lost, or purchase a home with no down payment (compared to the 3.5 percent required for standard FHA loans and 10 to 20 percent for convention mortgage programs).
- Attractive mortgage rates under FHA 203(h)
- Flexible borrower eligibility requirements, requiring as low as a 500 minimum credit score.
- The loan can be applied towards refinances or new home purchases.
- The loan can be used toward the reconstruction of a single-family property that was affected by the disaster, or toward the purchase of a new home. New properties, as stated previously, do not need to be located within the disaster area.
- No borrower income limit to qualify.
The Drawbacks of FHA Disaster Relief Loans
While an FHA 203h loan offers numerous benefits to disaster victims, there are a few drawbacks of obtaining this type of loan of which you should be aware in order to make an informed decision on whether or not to submit an application. You may experience the following drawbacks for this type of loan:
- You will be required to pay upfront and ongoing mortgage insurance premiums for the FHA loan
- You may experience FHA loan limits, which will be based upon the area that you are interested in purchasing a home or the area in which your disaster home must be rebuilt
- You will be limited to a one-year period following an area being designated as a disaster zone to apply within
203h Requirements and You
FHA 203h loan requirements must be met in order to be approved for a loan. As stated previously, you must apply for the loan within one year from the date that the President of the United States declares an area a disaster area. Additionally, you must meet credit score, debt-to-income ratio and employment history requirements for FHA eligibility. There are no borrower income limits or asset limitations when applying for a loan.
To obtain a 203h loan, you must meet credit score requirements. However, note that the minimum amount of credit score than you must have is often considered far lower than most government-backed or conventional mortgage programs. When you submit an application, the lender will also consider your debt-to-income ratio, which is your monthly gross income against your monthly expenses, such as:
- Housing expenses.
- Credit card payments.
- Student loans.
- Homeowner’s insurance.
Your debt-to-income ratio can not only affect your eligibility, but also the amount that you may qualify for.
Finally, FHA 203h loan requirements also require you to have a source of income and steady employment. Your employment history will be reviewed when you submit an application, however, lenders are also generally more flexible if you lost your job or if you are temporarily employed due to the natural disaster that occurred in your area.
If you are interested in learning more about 203h requirements, download our free and comprehensive guide.
How to Apply for a FHA 203h
To apply for FHA 203h, you will need to learn how to find an FHA-approved lending institution. Applications are not submitted directly to the Federal Housing Administration. Each lender may also offer you different mortgage terms and eligibility requirements. If you do not qualify for a loan through one lender, another lender may still accept your loan application. Therefore, you are strongly encouraged to review multiple lenders in your area that offer this form of mortgage, in order to make an informed decision prior to submitting an application.
For a more detailed look on FHA disaster relief loans, including eligibility requirements and how to apply, you are strongly encouraged to download our informative guide. This guide will provide you with a more in-depth look at this type of loan, as well as other FHA loans that may be available to you.