The President of the United States has the authority to declare a county a disaster area. The recent catastrophe in Houston with Hurricane Harvey, parts of the city has led to the need for Presidential intervention. Areas like Houston and other surrounding regions affected by this severe natural disaster have been subsequently declared disaster areas by the President and are eligible for FHA 203h home loans.
The FHA 203h home loans are specialized mortgages designed to help replace and rebuild homes that were damaged by natural disasters, making it easier and faster for disaster victims to get their lives back.
What are FHA 203h Loans?
FHA 203h loans are disaster relief loans that have the backing of the Federal Housing Administration, otherwise known as FHA. The mortgage loans are made under the Section 203(h) of the National Housing Act and are designed to assist victims of the natural disaster to buy a home with full 100% financing. The loans are also extended to help flood victims that want to buy new homes after the catastrophe. As long as their previous residence is located in a Presidentially-declared disaster area, they qualify for a no money down mortgage – the FHA 203(h) program.
The program is directed towards assisting victims of natural disaster, helping them recover as soon as possible; it comes with more permitting requirements and guidelines just like any FHA insured loans. An FHA-approved lender must initiate the process of applying for loans under this program.
Qualifying for the loan program
For anyone to qualify for 203h loans for disaster victims, they must meet the following conditions:
- You must live in an area that has been presidentially declared a disaster area, in this case, Houston or any of the surrounding areas.
- You should be a homeowner whose extent of destruction or damage necessitates rebuilding or replacing the home.
- You should show evidence of living in the area and that the home sustained damages.
- A mortgage application must be submitted to a lending institution approved by the FHA within one year after the area was declared a disaster area.
Features of the loan program
203h home loan is not just like any other mortgage for disaster-affected homeowners, but it comes with the primary attributes that stand it out from any other such loan program. Below are some of the unique features of the program.
Credit Score – The minimum credit score required to be eligible for the loan varies from one FHA-approved lender to another. Most lenders require a mid-FICO score of 620.
Debt-to-Income Ratio – The maximum DTI is 31% front-end and 43% back-end, respectively.
Down Payment – There is no down payment required here, as financing is up to 100 percent.
Closing Costs – Borrowers are required to pay closing costs and prepaid expenses. Alternatively, borrowers are allowed to arrange for premium pricing. In this instance, sellers can offer as much as 6 percent in concessions.
Lender’s Fees – The Federal Housing Administration sets limits on fees that lending institutions can charge. The charges here include fees for property appraisals and inspections.
Loan Types – FHA 203h home loan program is available in fixed-rate, fully amortized mortgages. These mortgages come in increments of 10, 15, 20, 25, and 30 years.
Loan Limit: The loan limits are determined based on the county where the property being purchased is located.
Mortgage Insurance: Mortgage insurance premiums, otherwise known as MIPs, are part of the requirement, as borrowers are required to pay them upfront and every month. While upfront MIPs can be financed into the loan, monthly MIPs are usually added to the monthly mortgage payment.
Property – The sole purpose of the loan is for buying a house, i.e., a single-family home or a unit in a condominium project approved by the Federal Housing Administration. The home loan cannot be used in financing the purchase or reconstruction of second homes, timeshares, manufactured homes, investment properties, co-ops, and two- to four-unit properties, among others.
FHA 203(h) vs. FHA 203(k) Loans
FHA 203(h) loans are designed for financing the purchase of a home. Homeowners or renters displaced by a catastrophe, such as Hurricane Harvey qualifies. Whereas, the 203k loans are intended to fund the renovation and rehabilitation of homes that were severely damaged by disasters.