II.A.8.b. Disasters and 203(h) Mortgage Insurance for Disaster Victims (09/14/15)

Owned by Kacey Olson
Nov 21, 2018
3 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definition
ii. Eligibility Requirements
iii. Eligibility Documentation Requirements
iv. Refinancing Policy
v. Using Section 203(k) with 203(h) for Rehabilitation

i. Definition

Section 203(h) of the National Housing Act authorizes FHA to insure Mortgages to victims of a Presidentially-Declared Major Disaster Area (PDMDA) for the purchase or reconstruction of a Single Family Property.

Mortgages to be insured under Section 203(h) must be processed and underwritten in accordance with the regulations and requirements applicable to the 203(b) program. Where 203(b) program guidance conflicts with the specific requirements on Section 203(h) Mortgages provided below, this specific guidance controls.

ii. Eligibility Requirements

(A) Borrower Eligibility

(1) Application DeadlineThe FHA case number must be assigned within one year of the date the PDMDA is declared, unless an additional period of eligibility is provided.

(2) Principal ResidenceThe mortgaged Property must be the Borrower’s Principal Residence.

(3) Credit ScoreThe Borrower must have a minimum credit score of 500.

(B) Property EligibilityThe 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. A list of the specified affected counties and cities and corresponding disaster declarations are provided by the Federal Emergency Management Agency (FEMA).The purchased or reconstructed Property must be a Single Family Property or a unit in an FHA-approved Condominium Project.

(C) Minimum Required Investment/Maximum Loan-to-ValueThe 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.

(D) UnderwritingThe Mortgagee should be as flexible as prudent decision making permits.The Mortgagee is required to make every effort to obtain traditional documentation regarding employment, assets, and credit, and must document their attempts. Where traditional documentation is unavailable, the Mortgagee may use alternative documentation as outlined below. Where specific requirements are not provided below, the Mortgagee may use alternative documentation that is reasonable and prudent to rely upon in underwriting a Mortgage.

(1) CreditFor Borrowers with derogatory credit, the Mortgagee may consider the Borrower a satisfactory credit risk if the credit report indicates satisfactory credit prior to a disaster, and any derogatory credit subsequent to the date of the disaster is related to the effects of the disaster.

(2) IncomeIf prior employment cannot be verified because records were destroyed by the disaster, and the Borrower is 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 Mortgagee may also include short-term employment obtained following the disaster in the calculation of Effective Income.

(3) LiabilitiesWhen a Borrower is purchasing a new house, the Mortgagee may exclude the Mortgage Payment on the destroyed residence located in a PDMDA from the Borrower’s liabilities. To exclude the Mortgage Payments from the liabilities, the Mortgagee must:

  • obtain information that the Borrower is working with the servicing Mortgagee to appropriately address their mortgage obligation; and
  • apply any property insurance proceeds to the Mortgage of the damaged house.

(4) AssetsIf 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.

(5) Housing Payment HistoryThe Mortgagee 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.The Mortgagee may justify approval if the Borrower was three or more months delinquent if extenuating circumstances are documented by the Mortgagee.

iii. Eligibility Documentation Requirements

The Mortgagee 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. If purchasing a new house, the house need not be located in the area where the previous house was located.

iv. Refinancing Policy

Refinancing is permitted in conjunction with rehabilitation.

v. Using Section 203(k) with 203(h) for Rehabilitation

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.