FHA 203(h) loans are loans from private lenders governed and insured by the Federal Housing Administration (FHA).

203(h) loans are intended to assist homeowners who have suffered  significant wind, flood or fire damage as they pick up the pieces and rebuild their homes and lives. 

The FHA can offer home financing to victims of major disasters, whose residences have been significantly damaged, thanks to the Section 203(h) program. 

An example of such a natural disaster is the recent hurricane, “Ian,” which upended millions of lives in the southeast United States. The storm significantly impacted various regions in Florida and the Carolinas, especially the Naples, Fort Myers, Key West, Orlando and Jacksonville areas in Florida. 

We’ll go over the features of the 203(h) loan, how this loan works, who qualifies and how you can meet with a reputable lender to apply for a 203(h) loan.

What is a 203h loan?

The 203(h) loan is a specialized FHA loan program that offers up to 100% financing to assist disaster victims. The loan is for purchasing new properties or reconstructing existing houses after catastrophic damage.

This loan is specially reserved for disaster victims whose principal residence was destroyed or damaged to the point where rehabilitation or replacement is required in a Presidentially Declared Major Disaster Area (PDMDA). 

People who live in areas the president has declared as disaster areas and whose homes were devastated are eligible for this program. 

Features of the 203h loan

So what exactly is offered with this type of loan?

Here are the features of a 203(h) loan: 

1. Home must be a primary residence to replace damaged home
2. Current home can be renovated, rebuilt or refinanced with 203(h) loan
3. 15- and 30-year fixed terms available
4. FHA-approved condominium projects are eligible
5. New residence can be located in any jurisdiction (across county or state lines)
6. Closing fees and other prepaid expenses for these mortgages must be covered by the borrower in cash, through premium pricing, or by the seller, with seller concessions limited to a maximum of six percent.

Benefits of a 203h loan

Now that you know what the loan offers, let’s look at the benefits of a 203(h) loan:

1. 100% financing available
2. No down payment is required
3. Max loan-to-value (LTV) is 100% of the adjusted value
4. Options are available for no out-of-pocket expense
5. Victims can reinvest up to six months’ worth of mortgage payments for living costs
6. Requirements for qualifications and credit history are flexible; your credit score before the catastrophe is considered
7. Renters who moved due to a disaster might be qualified for 100% financing and excluded from the 3.5% down payment requirement associated with the typical FHA loan
8. Financing from a 203(h) loan is not required to be used immediately

Who qualifies for a 203h loan?

A homeowner or renter whose primary residence has been completely or significantly destroyed by a natural disaster can qualify for this program. 

The FHA can cover mortgages issued by licensed lenders to victims of a significant disaster who have lost their houses and are in the process of reconstructing or purchasing another home.

Eligibility for a 203(h) loan

The prior residence may have been owned or rented, but it must have sustained enough damage that it needs to be rebuilt or replaced. Only principal owner dwellings are eligible for 203(h) loans. 

The 203(h) program also has an occupation requirement; investment properties are not allowed. The new house is not required to be built in the same area as the old one, however.

The borrower must still obtain approval for the new loan and show that they can afford it. The market value and state of the property that will be financed, as well as the borrowers’ income, assets, liabilities, credit history and credit score will be considered while determining eligibility. The value taken into account when rebuilding will be the value of the house in the current market after it is finished.

Additional criteria for eligibility:

• The borrower must intend to use the property as their principal residence.
• The amount borrowed must not exceed the county-specific FHA loan limits, which are greater in regions of the country where real estate is more expensive.
• The minimal FICO score might range from 580 to 620, depending on the lender. Compared to normal FHA loans, the credit standards for this program are more lenient. It’s common to ignore bad credit (such as missed payments) due to the catastrophe and lost time at work.

How long do you have to apply for a 203h loan?

Borrowers have up to a year from when the disaster area was declared to apply for the loan. 

If possible, make sure you can prove your place of residence. Make certain you have insurance claim papers, FEMA documents, photos and other crucial information.

Like all other FHA home loans, 203(h) loans for disaster victims need mortgage insurance. 

Although the first mortgage insurance premium may be funded, borrowers should be ready to set aside money each month for premiums for this insurance that will be added to their mortgage payment. There are limits on some costs the lender may charge in conjunction with 203(h) loans, comparable to other FHA loan types.

How do you get a 203h loan?

You must be eligible for a traditional FHA loan in order to qualify for a 203(h) loan. 

When evaluating candidates for a 203(h) loan, several financial institutions advise their borrowers to consult official government websites such as FEMA.gov. 

There may be a brief wait until the official announcement of the disaster in your area has been made on websites like FEMA. 

Some lenders might require documentation of the home’s disaster-related damage or destruction. Appraisals or insurance reports may serve as such proof. Depending on the lender, these conditions could change.

Get Approved for a 203h loan with Compass Mortgage 

Losing one’s home to a natural disaster is tough, and we sympathize with you. 

That’s why we would love to help you while you and your family go through this difficult time.  

Because we value our clients so much, we offer Get Committed®, our unique loan commitment program. In order to ensure that you don’t lose out on the house that’s ideal for you, our program offers a completely underwritten loan commitment and locks in your interest rate even before you identify the property you want to buy. 

Apply with us today for a 203(h) loan with a simple, personalized loan process only we can provide.

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