184.108.40.206 Section 203(h) Mortgage Insurance for Disaster Victims
Section 203(h) of the National Housing Act authorizes the FHA to insure mortgages for victims of a disaster for the purchase or reconstruction of a single-family property.203 This program allows FHA-approved lenders to provide financing for homeowners (or renters) whose residences were destroyed or damaged to such an extent that reconstruction or replacement is necessary, and it provides 100% financing for the purchase or reconstruction of a home. As HUD states: “Through Section 203(h), the Federal Government helps victims in Presidentially designated disaster areas recover by making it easier for them to get mortgages and become homeowners or re-establish themselves as homeowners.”204
There are both borrower and property eligibility requirements for Section 203(h) mortgages. For the borrower to be eligible, the FHA case number must be assigned within one year of the date of the disaster declaration; the mortgaged property must be the borrower’s principal residence; and the borrower must have a minimum credit score of 500. For the property to be eligible, the residence must have been in a disaster area and destroyed or damaged to such an extent that reconstruction or replacement is necessary, and the purchased or reconstructed property must be a single-family property or a unit in an FHA-Approved condominium project. Documentation attesting to the damage of the previous property must accompany the mortgage application.205
The HUD website states that Section 203(h), like the basic FHA mortgage insurance program it resembles included in Section 203(b) (Mortgage Insurance for One to Four Family Homes), “offers features that make recovery from a disaster easier for homeowners.” The website explains that no down payment is required. The borrower is eligible for 100% financing, though closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a six percent limitation on seller concessions. The insurance is not free: at the time of purchase, the mortgagee collects an upfront insurance premium from the borrower, which may be financed, as well as monthly premiums that are not financed but instead are added to the regular mortgage payment.206 There are limits on the amount that may be insured. To make sure that its programs serve low- and moderate-income people, FHA establishes limits on the dollar value of the mortgage.207
203 See 12 U.S.C. § 1709(h); 24 C.F.R. Part 203.
204 U.S. Dep’t of Hous. & Urban Dev., Mortgage Insurance For Disaster Victims Section 203(h), available at https://www.hud.gov.
205 U.S. Dep’t of Hous. & Urban Dev., FHA Single Family Housing Policy Handbook 4000.1, II.A.8.b.ii, Disasters and 203(h) Mortgage Insurance for Disaster Victims.
206 U.S. Dep’t of Hous. & Urban Dev., Mortgage Insurance For Disaster Victims Section 203(h), available at https://www.hud.gov.
207 This mortgage limit may be viewed at https://entp.hud.gov.