FHA · HUD Handbook 4000.1FHA 203(h) mortgage for disaster victims: buying or rebuilding with no down payment

After a presidentially declared major disaster, FHA's Section 203(h) program insures mortgages for victims who lost their housing or whose housing was damaged and who are rebuilding or buying another home. Under HUD Handbook 4000.1, the FHA case number must be assigned within one year of the date the disaster area is declared, unless an extension is announced; the new home must be the borrower's principal residence; and the minimum credit score is 500. The borrower's previous residence – owned or rented – must have been in the declared area and destroyed or damaged so much that it has to be rebuilt or replaced, documented with the application; a purchased home doesn't have to be in the same area. The property must be a single-family home or a unit in an FHA-approved condominium project. There is no Minimum Required Investment, and the loan can be up to 100% of the adjusted value (or the 203(k) limit when combined with a 203(k) rehab loan; damaged homes in the area qualify for 203(k) regardless of age). Underwriting is meant to be as flexible as prudent: derogatory credit after the disaster that's related to it can be overlooked if credit was satisfactory before; W-2s and tax returns from the IRS can confirm prior employment when records were destroyed, and short-term post-disaster work can count; the mortgage on the destroyed home can be excluded from debts if the borrower is working with that servicer and insurance proceeds go to that mortgage; downloaded bank statements can verify assets; and disaster-caused late payments on the destroyed home can be disregarded if the borrower wasn't three or more months behind when the disaster hit.