Disaster Relief Mortgage Allows 100% Financing
HUD Hurricane Relief Options
In the wake of Hurricanes Harvey, Irma, and Maria this, HUD announced a reminder to participating lenders that the FHA 203(h) is available to help rebuild affected communities.
A Presidentially-Declared Major Disaster Area (PDMDA) triggered the availability of the FHA 203(h) which allows mortgage insurance up to 100% financing for the purchase, or refinance of a disaster affected family.
Eligible for Hurricane Relief Mortgage
- Texas – Hurricane Harvey – August 25th, 2017
- Florida – Hurricane Irma – September 10th, 2017
- Georgia – Hurricane Irma – September 15th, 2017
- Alabama – Hurricane Irma – September 11th, 2017
- South Carolina – Hurricane Irma – September 8th, 2017
A list of the specified affected counties and cities and corresponding disaster declarations is provided by the Federal Emergency Management Agency (FEMA).
FHA 203(h) for Disaster Victims
FHA underwriting guidelines section 203(h) allows FHA to insure Mortgages made by qualified victims who have lost their housing, or whose housing was damaged and are in the process of rebuilding or buying another house.
While not specifically a hurricane relief mortgage, the recent hurricane disasters have put this special program in the sights of lenders eager to help those affected.
If purchasing a new house, the house need not be located in the area where the previous house was located.
- Application Deadline – The FHA case number must be assigned within 1 (one) year of the date the PDMDA is declared, unless an additional period of eligibility is provided.
- Principal Residence – The mortgaged Property must be the Borrower’s Principal Residence.
- Credit Score – The Borrower must have a minimum credit score of 500.
- Property Eligibility – The previous residence (owned or rented) must have been located in a PDMDA and destroyed or damaged to such an extent that reconstruction or replacement is necessary.
- Property Type -The purchased or reconstructed Property must be a Single Family Property or a unit in an FHA-approved Condominium Project.
Minimum Required Investment/Maximum Loan-to-Value
- The Borrower is not required to make the Minimum Required Investment (MRI).
- The maximum Loan-to-Value (LTV) ratio limit is 100 percent of the Adjusted Value.
- If a 203(k) is used in conjunction with a 203(h), the 203(k) LTV applies.
After a natural disaster, many families are displaced completely, and much of your personal documentation may have been lost in the flood.
Lenders are required to make every effort to obtain traditional documentation regarding employment, assets, and credit, and must document their attempts.
Where traditional documentation is unavailable, your lender may use alternative documentation as outlined below.
- Credit for borrowers with derogatory credit – The lender may consider your credit a satisfactory credit risk if the credit report indicates that your credit was acceptable prior to the disaster, and any derogatory credit subsequent to the date of the disaster is related to the effects of the disaster.
- Income – If prior employment cannot be verified because records were destroyed by the disaster, and you are in the same/similar field, then FHA will accept W-2s and tax returns from the Internal Revenue Service (IRS) to confirm prior employment and income. The lender may also include short-term employment obtained following the disaster in the calculation of Effective Income.
- Liabilities – When you are purchasing a new house, the lender may exclude the Mortgage Payment on the destroyed residence located in a PDMDA from your liabilities. To exclude the mortgage payments from the liabilities, the lender must obtain information that you are working with the servicing lender to appropriately address their mortgage obligation, and apply any property insurance proceeds to the Mortgage of the damaged house.
- Assets – If traditional asset documentation is not available, the Mortgagee may use statements downloaded from the Borrower’s financial institution website to confirm the Borrower has sufficient assets to close the Mortgage.
- Housing Payment History – Your lender may disregard any late payments on a previous obligation on a Property that was destroyed or damaged in the disaster where the late payments were a result of the disaster and the Borrower was not three or more months delinquent on their Mortgage at the time of the disaster.
- Extenuating Circumstances – Your lender may justify approval if you were three or more months delinquent if extenuating circumstances are documented by the lender.
The lender must document and verify that the Borrower’s previous residence was in the disaster area, and was destroyed or damaged to such an extent that reconstruction or replacement is necessary.
Documentation attesting to the damage of the previous house must accompany the mortgage application.
Using a 203(k) Rehab Mortgage with 203(h) Disaster Relief Mortgage
Damaged residences located in a PDMDA are eligible for Section 203(k) mortgage insurance regardless of the age of the Property.
The residence only needs to have been completed and ready for occupancy for eligibility under Section 203(k). All other Section 203(k) policy must be followed.
Finding a Lender that Can Help
Thankfully, natural disasters of this magnitude are few and far between. The down side to this is the fact that lenders do not normally have the ability to extend the above flexibilities and alternative documentation considerations when underwriting a loan file, and therefore may be unaware, or inexperienced with these guidelines.
There are many lenders that have embraced the FHA 203(h) and there are many experienced and professional loan officers that are willing to learn something new, and work with their underwriters to make sure that they are aware that they have flexibility when underwriting your loan under these circumstances.
As always, beware of scams out there asking for upfront money. There is nothing about qualifying for a disaster relief mortgage that requires up front money.
If you’re reading this, hopefully your family is ok, and I hope that learning about the FHA 203(h) puts a silver lining on an incredibly difficult time.
If you have questions about this program, or would like an introduction to a lender that is offering these programs, please feel free to inquire, ask a question, or comment below and we’ll try to get you pointed in the right direction and guide you down the road to recovery.