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If the deadliest December tornado on record didn’t serve as a wake-up call to the increasing frequency and intensity of natural disasters, then perhaps the mid-winter wildfires in California and Colorado will.

According to the National Oceanic and Atmospheric Administration, there were 20 disaster events that caused a billion or more dollars in damage in 2021 alone – well above the 30-year average of 7.4 and just two events shy of the record set in 2020.

There’s little homeowners can do to protect their home from a category 5 hurricane or a three-quarter-mile-wide night tornado, but ones who lose their homes in a disaster may be eligible for 100 percent financing to rebuild or replace their homes through the FHA 203h program.

What is the FHA 203h program?

Section 203h of the National Housing Act authorizes the Federal Housing Administration (FHA) to help those who lose their homes or even rental residences in Presidentially declared disaster areas.

That means if your home is destroyed in a natural disaster, and the President declares it a major disaster event, you may be eligible for an FHA loan to rebuild or buy a new home with no down payment.

An FHA loan typically requires a minimum 3.5% down payment, which amounts to $12,250 for a $350,000 home. And the 3% minimum down payment for a conventional loan would be $10,500 – which is still a good chunk of change.

That kind of cash can be hard to come by for a disaster victim suddenly paying for new belongings and a temporary place to live after losing their home and/or livelihood.

The FHA 203h loan waives the down payment requirement to help eligible disaster victims regain homeownership. Not all banks and mortgage lenders offer this loan product, but Fairway does.

FHA 203h eligibility requirements

To qualify, the damaged or destroyed home must be a primary residence in a Presidentially-Declared Major Disaster Area (PDMDA). Additionally, you did not need to own the destroyed home. Those whose rented homes or apartments were destroyed are eligible, too.

At the time this was published, there were current major disaster declarations for areas in:

  • Alabama, Arkansas, Kentucky, and Tennessee due to severe storms and tornadoes
  • Washington state due to flooding and mudslides
  • Colorado and California due to wildfires

A Home Disaster Inspection Report by an HUD-approved home inspector is required to assess the damage on the previous home.

Additional borrower qualifications include:

  • Minimum 600 credit score
  • No more than 2 late mortgage payments at the time of the disaster (may vary by lender)
  • Late payments as a result of the disaster may be disregarded
  • The previous home must be “destroyed or damaged to such an extent that reconstruction or replacement is necessary”

Finally, the FHA 203h borrowers must obtain an FHA case number – which typically happens when you apply for the loan – within one year of the disaster declaration. For example, the severe storms and tornadoes in Kentucky were declared a disaster on December 12, 2021, so affected homeowners have until December 12, 2022 to obtain a case number, unless the eligibility period is extended.

Buying a home with an FHA 203h loan

Buying a home with a 203h loan is similar to using a typical FHA purchase loan, with a few tweaks to credit score and down payment requirements.

FHA loan  FHA 203h loan Minimum down payment3.5%0%Credit score580600Buyer responsible for closing costs?YesYesMortgage insuranceUpfront fee plus monthly premiums for life of loanUpfront fee plus monthly premiums for life of loanLoan limits$420,680 floor for most areas; up to $970,800 in high cost areas$420,680 floor for most areas; up to $970,800 in high cost areas

The new home must be a primary residence that’s either a single-family home or an FHA-approved condo unit. The FHA 203h loan also allows borrowers to reconstruct a damaged home.

It’s notable that the new property does not need to be in the previous disaster area. So if your home burns down in California you can start fresh in Topeka, Kansas.

Starting fresh

Between floods, fires, tornadoes, and hurricanes, most homeowners in the US are at risk of losing their home to a natural disaster. Although memories of the old home can’t be replaced, the FHA 203h loan can help disaster victims regain homeownership with no down payment.

Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

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