FHA 203(h): Mortgage Insurance for Disaster Victims

The FHA 203(h) Disaster Victims Program gives the Federal Housing Administration (FHA) the ability to insure mortgages that borrowers who have lost their homes in a major disaster have received from qualified lenders.

Section 203(h) allows the federal government to aid victims who have lived in areas designated by the President as disaster areas, leading them towards recovery by giving them the opportunity to get mortgages while rebuilding or purchasing new homes.

Type of Assistance

The program makes mortgage insurance available for protecting lenders who lend to qualified disaster victims from the possibility of a mortgage default.

Individual borrowers can qualify for the program if their homes are in a specially designated disaster area, and if the damage to their homes was so severe that they must rebuild or relocate.

Under the program, borrowers may use their insured mortgages toward financing the purchase or rebuilding of a single-family home that the homeowner will occupy as a principal residence.

As with the similar FHA mortgage insurance program under Section 203(b), which covers one-to-four family homes, Section 203(h) makes it easier to own a home in several important ways.

• No down payment necessary: the borrower qualifies for 100% financing. The closing costs and prepaid expenses are the responsibility of the borrower, who will pay in cash or via premium pricing, or of the seller, who will be subject to a concessions limit of 6%.
• FHA insurance not free: the borrower pays an insurance premium at the time of purchase, in addition to monthly unfinanced premiums that are included with regular mortgage payments.
• Limits on fees: lenders face certain restrictions on the fees they can impose on the mortgage. As an example, the origination charge that covers the cost of processing the loan cannot be greater than one percent of the mortgage amount (separate from financed upfront insurance premiums). Also, the FHA is responsible for setting the inspection and property appraisal fees.
• Limits on the insurable amount: the FHA also limits the dollar amount of the mortgage, which is currently in the range of $172,632 and $312,895. This measure is in place for the benefit of low-to-moderate-income consumers. These figures are subject to change over time and vary by geographic region, with cost of living factored in. There are also higher amount limits on two-to-four-family properties.

Eligible Participants

All lending institutions approved by the FHA are eligible for Section 203(h) insurance. These institutions may be mortgage companies, banks and savings-and-loan entities.

Eligible Customers

Anyone who has had a home extensively damaged or destroyed in a disaster area designated as such by the President can apply for Section 203(h) insurance.

To Apply

The applicant has within one year of the presidential declaration of disaster to submit an application for mortgage insurance. Applications get processed through lending institutions with FHA approval. These institutions use “Direct Endorsement” to review applications without having to submit the paperwork to HUD. The administration and processing of mortgage insurance is done through HUD Homeownership Centers.