Back in August, President Obama declared certain counties in Louisiana as disaster areas due to the devastating flood. These areas are just examples of presidentially declared disaster areas that are eligible for FHA 203h loans or 203(h) loans. These special mortgages make replacing and rebuilding homes damaged by natural disasters easier and faster. »Take advantage of low mortgage rates!»
What are FHA 203h Loans?
These are loans made under Section 203(h) of the National Housing Act and backed 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 geared towards helping disaster victims recover as soon as they can, it has more relaxed guidelines and fast application process, which can be 30 to 90 days. In fact, victims with late debt payments after the disaster can apply.
To qualify for an FHA 203h loan, a borrower must:
- live in an area designated as a presidentially declared disaster area as in the recent case of Louisiana.
- own a home whose extent of damage or destruction requires the home to be rebuilt or replaced.
- show proof that he/she lived in the area and the home has sustained damages.
- submit a mortgage application within one year after the disaster declaration has been made, to an FHA-approved lender.
»Want to know if you qualify for a mortgage? Speak with one of our lenders today.»
The key attributes of an FHA 203(h) loan can be summarized as follows:
Credit Score: A minimum credit score of 620 is required.
Debt-to-Income Ratio: DTI must not exceed 31/43%.
Down Payment: No down payment is required. Financing is up to 100%, including closing costs.
Closing Costs: Borrowers shall pay closing costs and prepaid expenses or they may arrange for premium pricing, whereby sellers can offer up to 6% in concessions. The FHA does not allow the use of gift funds.
Lender’s Fees: The FHA sets caps on fees usually charged by lenders. These include fees for property appraisals and inspections.
Loan Types: FHA 203h loans are available in fixed-rate, fully amortizing mortgages with increments of 10, 15, 20, 25, and 30 years.
Loan Limit: FHA 203(h) loans are governed by loan limits per county.
Mortgage Insurance: Mortgage insurance premiums (MIPs) are required to be paid upfront and every month. Upfront MIPs can be financed into the loan while monthly MIPs are added to the monthly mortgage payment.
Property: The loan must be used to buy or rebuild a primary residence, i.e. a single-family home and a unit in an FHA-approved condominium project. It can’t be used to finance the purchase or reconstruction of second homes, investment properties, timeshares, co-ops, manufactured homes, and two- to four-unit properties, among others.
FHA 203(h) vs FHA 203(k) Loans
FHA 203(h) loans finance the reconstruction of disaster-damaged homes or purchase of new homes. Consequently, homes that have been severely damaged by disasters and require renovation and rehabilitation are under FHA 203(k) loans. FHA 203(k) loans also address the purchase and repair of a fixer-upper.
While nobody knows when disasters strike, it’s good to know that there are options available for homes that needed to be reconstructed or replaced through FHA 203h loans. »Search for more mortgage deals here»
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.