When a natural disaster destroys
or seriously damages your home and your insurance policy doesn't
provide all the financial assistance you need, where can you turn for
help? Four government programs offer rebuilding assistance: the 203(h)
loan, 203(k) loan, SBA loans and the Individuals and Households program.
This article will explore the types of repairs these loans can fund,
their eligibility requirements and how to apply.
203(h) Loans
If
you've lost your home and want to rebuild or purchase a different one,
take a look at the 203(h) loan. This FHA-insured mortgage can be used to
rebuild destroyed or severely damaged homes or to purchase a different
home. To qualify, your home be damaged to the point of requiring
reconstruction or replacement and be located in a presidentially
designated disaster area. You must apply to an FHA-approved lender within a year of the president's disaster declaration.
203(h)
loans can be used only for single-family primary residences, but they
do allow for 100% financing. If you're using the loan to buy a different
home and not to rebuild your damaged home,
you're allowed to receive up to 6% of the purchase price from the
seller to put toward your closing costs and prepaid expenses (homeowners
insurance and property taxes).
A drawback is that you'll pay both an up-front mortgage insurance
premium and monthly mortgage insurance premiums. Only the up-front
premium can be financed and the loan amount cannot exceed the FHA's
limits for your area.
203(k) LoansThe FHA 203(k)
loan was designed for individuals looking to rehabilitate or repair a
damaged home intended to be the person's primary residence. These loans
are often used to fix up damaged foreclosures and other run-down homes.
They can also be used to repair homes damaged by severe weather events
and other natural disasters. If you don't have enough money to repair
your disaster-damaged home, you can get the money by refinancing with a
203(k) loan.
The loan will include enough money to pay off your
existing mortgage and to pay for the materials and labor required to
make repairs. The maximum loan amount cannot be more than what the
property is expected to be worth after repairs, as determined by a
professional appraiser. If the home is so damaged that it's
uninhabitable until at least some repairs are completed, you'll be glad
to know the 203(k) loan allows you to borrow up to six months' worth of
mortgage payments. This provision makes it possible for you to live
somewhere else during construction.
Single-family to four-family
dwellings and FHA-approved condos are eligible as long as they were
built at least a year ago and the original foundation will be used. The
repairs must meet HUD's Minimum Property Standards (which include energy
efficiency and safety standards) as well as your city's codes and
ordinances.
203(k) loan funds cannot be used for swimming pools,
barbecue pits and certain other items that the FHA considers luxuries.
The money will get you a home you can live in again, however, and you
are allowed to build an upgraded version of your former home. The 203(k)
loan also is less restrictive than some of your other options. For
example, the home does not have to be located in a presidentially
declared disaster area to qualify for financing.
You must apply to an FHA-approved lender. It also helps to find a
203(k) loan specialist since these loans can be complex. Like the 203(h)
loan, the 203(k) loan requires borrowers to pay both an up-front
mortgage insurance premium and monthly mortgage insurance premiums. Only
the up-front premium can be financed.
SBA LoansThe
Small Business Administration provides "low-interest, long-term loans
for losses that are not fully covered by insurance or other recoveries."
Despite the agency's name, these loans can indeed be used for repair or
replacement of disaster-damaged homes.
The SBA's disaster
recovery loans are much more restrictive than 203(k) loans. Loans are
limited to $200,000, and the damaged home must be located in a declared
disaster county. Also, these loans cannot be used for upgrades, only
repairs. The exception is upgrades to provide better protection against
"possible future disasters of the same kind." The SBA also offers loans
of up to $40,000 to replace destroyed personal property such as furniture, clothing and cars. Apply online, or apply in person at an SBA office.
Individuals and Households ProgramIf
insurance or other forms of disaster assistance aren't enough to help
your situation, you can try the federal government's Individuals and
Households Program. If the damaged home is your permanent residence and
is located in a presidentially declared disaster area, you may receive
funds. These can be used toward temporary housing, repair or replacement
of damaged housing, replacement of personal property, moving expenses,
medical expenses, and death expenses. This program, however, is not
designed to provide 100% assistance with disaster-related expenses.
Apply through FEMA online or by phone.
The Bottom LineIf your home was severely damaged by a natural disaster
and you don't have the financial resources to repair it, a number of
government assistance programs may provide you with the funds you need.
You'll likely have to jump through numerous bureaucratic hoops to obtain
these loans. You'll also pay interest on the money you borrow, but if
your cash reserves or insurance settlement are insufficient to cover all
the repairs, the trouble and expense may be worth it.
Read more: http://www.investopedia.com/articles/pf/13/home-loans-for-disaster-recovery.asp#ixzz2IjGrJPSL
