203(h) Loans

If you have lost your home in a major disaster, the Section 203(h) program may be able to help. This program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who are rebuilding or buying another home. 

With this program, you can get a mortgage with relaxed credit requirements and no down payment.

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What is a 203(h) Disaster Victims Loan?

The 203(h) loan is a special program designed to help victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home. This loan is backed by the Federal Housing Administration (FHA) and offers relaxed credit requirements with no down payment.

Unlike a traditional loan, the 203(h) loan is not based solely on your credit score or income. This means that you may still be able to get a loan even if your credit score has taken a hit as a result of your circumstances.

This type of loan allows you to finance up to 100% of the cost of rebuilding or buying a new home. You can use the loan to pay for the purchase of a new home, or you can use it to finance the construction of a new home.

There are two types of 203(h) loans:

  1. Home purchase loan: You can use this type of loan to finance the purchase of a new home. The loan can be used to pay for up to 100% of the cost of the home, including closing costs.
  2. Construction loan: You can use this type of loan to finance the construction of a new home. The loan can be used to pay for up to 100% of the cost of the home, including closing costs.

How to Get a 203(h) Loan

To learn whether a 203(h) loan is the best option for affording and rebuilding your home, connect with us. 

To get you started, we’ve outlined the steps and documentation needed to help you understand the process.

The Financing Process

When your home is destroyed or damaged in a disaster, you have several options for financing the repairs or replacement of your home. We recommend that you speak with a 203(h) mortgage specialist. They will help you understand the program and your eligibility and guide you through each step of the process. 

You’ll first need to pre-qualify for the program. This involves a review of income, assets, liabilities and credit scores. We recommend starting with a loan pre-approval, which you can get before beginning the repair or replacement process. 

By sharing basic information about your potential purchase or renovation plans, we’ll work with you to obtain your credit report and discuss your finances, as well as how to ensure your mortgage is affordable.

Before finalizing the loan, you’ll need to choose an eligible property, a contractor or other needed professionals who will complete the renovations. You’ll also need to get estimates for the repairs that are needed.

We’ll discuss the terms for which you qualify and your options, and we’ll request various documents for the underwriting process to make sure the loan begins on a solid foundation.

We’re with you through each step, leading to a simple and efficient closing so that you can move forward with repairing and renovating or replacing your home. You can use the loan to pay for the purchase of a new home, or you can use it to finance the construction of a new home.

203(h) Requirements

These are some of the common requirements often needed to qualify for a 203(h) disaster loan. If you have questions about these requirements, we’re here to help.

  • Credit score requirements vary: In most cases, a credit score of 550 or higher qualifies. This may shift lower or higher based on other factors such as debt-to-income ratio (DTI) and down payment amount.
  • Proof of ownership: If you’re applying for a 203(h) loan to repair your home, you’ll need to show proof that you own the property
  • Insurance: You must have insurance on the property in order to qualify for a 203(h) loan.
  • Repair estimates: You will need to provide repair estimates in order to get approved for a 203(h) loan. These estimates should include the cost of both labor and materials.
  • No downpayment is required: As the borrower, you’re eligible for 100% financing. Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a 6% limitation on seller concessions.

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203(h) Loan FAQs

Financing the purchase or repair of a home after a disaster can be a challenging but important time. It’s okay to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

A 203(h) loan may be right for you if you’re a victim of a major disaster and have lost your home. If you’re in the process of rebuilding or buying another home, a 203(h) loan can help you finance the purchase or construction of a new home. 

The first step in applying for a 203(h) Disaster Loan is to contact a participating lender, like us here at Compass Mortgage.

When you contact us, we’ll help you gather the information we need to approve your loan. This will include information about your income, assets and liabilities. You will also need to provide us with proof of employment and/or income. 

How much you can borrow—your loan limit—with a 203(h) loan depends on a number of factors.

The U.S. Department of Housing and Urban Development (HUD) sets limits on the amount that may be insured. To ensure that its programs serve low and moderate-income people, FHA sets limits on the dollar value of the mortgage. 

The current FHA mortgage limit can be viewed online. These figures vary over time and by place, depending on the cost of living and other factors. (Higher limits also exist for two to four-family properties).

The total purchase price plus renovation costs must also fall within FHA limits for the property’s area.

There is no down payment required when buying a house with a 203(h) loan. On the heels of a disaster, the last thing a homeowner needs to worry about is coming up with a large sum of money to put down unexpectedly.  

The only fee that is typically associated with a 203(h) loan is the mortgage insurance premium (MIP). With an FHA loan, you’ll pay an upfront MIP that is included at closing, as well as an annual MIP, which becomes part of the monthly mortgage payment. The annual MIP decreases each year over the lifetime of the loan.

MIP can be reduced based on various factors, such as if you have a higher down payment or a shorter term length.

For example, if your down payment is less than 10%, the MIP on your new FHA loan lasts for the life of the loan, reducing slightly each year. If your down payment is 10% or more, the annual MIP will only last 11 years.

203(h) BENEFITS
  • One loan for home purchase and repairs
  • Relaxed credit requirements
  • No down payment
  • Low-interest rates
  • Flexible terms
  • No prepayment penalty
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