Who Qualifies for a Disaster Loan?

Disasters, unfortunately, happen. 

Hurricane Ian recently wreaked havoc on parts of Florida. The storm had a major impact on Naples, Fort Myers, Key West, Orlando and even Jacksonville. 

What's in this article?

What is the purpose of a 203h or disaster loan?
The pros of a disaster loan
Who qualifies for a disaster loan?
How do I apply for a 203h loan?
Lets help you get your feet back on the ground after a disaster

As a homeowner, you need to be prepared in the case of an emergency. That’s why it’s important to understand your options if you find yourself in an area which has been struck by a disaster.

The FHA 203(h) loan is specially made to aid those who have undergone life-altering experiences that take place in a region where the president has declared a major disaster. 

When it comes time to rebuild, restore and recover, this government-backed loan is a fantastic first step in the right direction. 

What is the purpose of a 203h or disaster loan?

FHA 203(h) loans are intended to assist homeowners put the pieces back together and to rebuild if their home has suffered significant wind, water or fire damage as the result of a disaster.

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The pros of a disaster loan

In contrast to the 3.5% down payment required for a standard FHA (Federal Housing Administration) loan, the FHA 203(h) mortgage program allows borrowers in designated disaster areas to buy a home or rebuild their home with no down payment. 

If borrowers choose to buy a new home, it doesn’t have to be in the disaster area. The disaster loan can also be utilized to refinance a mortgage on a house that wasn’t completely destroyed in the disaster but needs restorations, reconstruction or repairs.

One special aspect of the program that is extremely helpful to borrowers who live in disaster areas is the opportunity to use an FHA 203(h) mortgage to restore or reconstruct their property after it’s been damaged. 

Lower mortgage rates and more lenient mortgage qualification standards—including a lower minimum credit score—are additional benefits of the FHA 203(h) program. 

For those who have been affected by natural catastrophes, the FHA 203(h) program helps to secure a mortgage and make it more affordable to purchase a new home.

The cons of a disaster loan 

The biggest drawback of an FHA 203(h) loan is that, like a conventional FHA loan, it requires the borrower to pay an upfront and recurring yearly mortgage insurance premium (MIP). 

The option to purchase a home with a $0 down payment and cheaper interest rates on FHA loans should make up for the required MIP, however.

Borrowers must apply for the program through one of the permitted lenders, such as banks, mortgage banks, mortgage brokers or credit unions, even though FHA establishes standards for the 203(h) mortgage. 

These recognized lenders confirm that candidates satisfy the prerequisites for eligibility and qualifying for the programs.

Who qualifies for a disaster loan?

The following are the qualifications you need to meet to receive an FHA 203(h) mortgage:

  • Must be a U.S. citizen, permanent or non-permanent resident, or DACA program recipient
  • Reside in a Presidentially Declared Major Disaster Area (PDMDA)
  • Your old home must have been completely destroyed or seriously damaged, necessitating a replacement rather than a simple repair.
  • The residence had to have been your principal dwelling, whether you owned it or rented it out. (Investment  homes are ineligible.)
  • The new home you intend to purchase must be your principal residence.
  • It is NOT necessary for your replacement home to be on the same property or to be located inside the declared disaster region.
  • You don’t need to act right away; you can apply up to a year from the day the President proclaims it a disaster region.

What other disaster loan qualifications are there?

Borrowers should be aware of the following additional eligibility conditions in addition to those indicated above. 

  • Borrowers must have a credit score of at least 550.
  • Although it’s possible to qualify for an FHA loan with a debt-to-income ratio of 50% or greater under certain conditions, lenders commonly utilize a DTI ratio of 43% to calculate the size of the 203(h) mortgage that borrowers can afford.
  • New residence must be detached and attached single-family house, PUD or FHA-approved condo.
  • At the time of the disaster, no more than two mortgage payments were late (may vary by lender). Late payments due to the tragedy may be ignored.

How do I apply for a 203h loan?

Borrowers must apply for the disaster loan with an FHA-approved lender.

Lenders are allowed to employ a “direct endorsement” when a borrower applies for an FHA 203(h) loan, which permits them to assess an application without sending further information or documents to the FHA. 

This speeds up the mortgage closing process for borrowers, which is crucial for those who have recently experienced a calamity.

Is a disaster loan the same as a 203h loan?

Yes, the FHA 203(h) is the same as the disaster loan. 

Situations that can be declared as disasters include:

  • Severe storms
  • High water
  • Wind-driven water
  • Tidal waves
  • Tsunamis 
  • Earthquakes
  • Droughts
  • Fires
  • Floods 
  • Volcanic eruptions
  • Landslides
  • Mudslides
  • Snowstorms
  • Explosions

Lets help you get your feet back on the ground after a disaster

Contact Compass Mortgage today to talk about applying for a 203(h) loan.

Homeowners in the U.S are often at risk of losing their homes to a natural disaster. The FHA 203(h) loan can help disaster victims regain homeownership with no down payment. 

Let’s discuss how to get you back on your feet.

Photo by Ralph W. lambrecht