At a glance
- Insured by
- FHA (HUD)
- For
- Declared-disaster survivors
- Occupancy
- Primary residence
Educational overview, not a loan offer. Requirements vary by lender and borrower.
Overview
Section 203(h) is an FHA program for people whose home, owned or rented, was in a presidentially declared major disaster area and was destroyed or damaged badly enough that it must be rebuilt or replaced. It can be used to buy a replacement home, which does not have to be in the same area, or to reconstruct the damaged one.
The FHA case number generally must be assigned within one year of the disaster declaration, unless HUD extends that window. Lenders follow standard FHA rules with added flexibility for credit, income and asset records affected by the disaster, and 203(h) can be paired with an FHA 203(k) loan when a damaged home needs repairs.
Highlights
- Buy a replacement home or rebuild the damaged one
- Credit problems caused by the disaster can be considered in context
- Can be combined with an FHA 203(k) renovation loan
How a 203(h) loan works
Section 203(h) of the National Housing Act lets FHA insure a mortgage for someone whose home was lost in a presidentially declared major disaster. It is not a grant or a government loan: a private FHA lender makes the loan and FHA insures it. The file is processed under the same rules as a standard FHA purchase, except where HUD's 203(h) guidance says otherwise, and those differences are mostly about flexibility.
The money can buy a replacement home anywhere in the country or pay to reconstruct the damaged one. HUD's 203(h) guidance has its own rule on the borrower's minimum required investment, and lenders are told to be as flexible as prudent underwriting allows, including when records were lost. FHA mortgage insurance and FHA's county loan limits still apply, and your loan officer can explain how the investment rule applies to a specific home.
See also
Who 203(h) is built for after a disaster
203(h) is narrow by design. It does not cover lighter damage that can be repaired, where a 203(k) renovation loan or relief from insurers, FEMA or the SBA is more relevant. People whose homes were outside the declared area can't use 203(h), though a standard FHA loan may still work.
Where 203(h) can fit:
- Homeowners whose house was destroyed or damaged so badly that it must be rebuilt or replaced
- Renters whose rented home was destroyed and who now want to buy
- Survivors relocating to another city or state after the disaster
- Owners who want to rebuild on their own lot rather than move
203(h) eligibility: the disaster declaration and filing window
HUD's 203(h) rules add three requirements to standard FHA eligibility. The home you lived in, as an owner or a renter, must have been in an area covered by a presidential major disaster declaration and must have been destroyed or damaged enough to need reconstruction or replacement. The FHA case number must be assigned within one year of the declaration date, unless HUD provides more time. And the new or rebuilt home must be your primary residence.
Everything else follows normal FHA rules: residency status, a valid Social Security number, a credit review, income that supports the payment, and a loan amount within FHA's limit for the county. FEMA publishes the areas included in each declaration, and the lender must document both your former address and the damage. Lenders can add requirements, and not every FHA lender offers 203(h).
Credit after a disaster
FHA sets a credit score floor for 203(h), as it does for other FHA loans, and lenders may set their own minimums above it. The difference is in how damage to your credit is read. If your credit was satisfactory before the disaster and the problems since then are tied to it, the lender may treat you as a satisfactory credit risk.
The same idea applies to your housing history. Late payments on the destroyed or damaged home caused by the disaster can be disregarded if you weren't already three or more months behind when it struck, and even then a lender can justify approval with documented extenuating circumstances. Keep records that connect the late payments to the event.
See also
Income, assets and lost records
Disasters destroy paperwork, and HUD's 203(h) rules account for that. Lenders must first try to get the usual documents and record their attempts, then may rely on reasonable alternatives. If an employer's records are gone and you still work in the same or a similar field, W-2s and tax returns obtained from the IRS can confirm past income, and short-term work you took after the disaster can count. Statements downloaded from your bank's website can show funds to close.
Items worth gathering early:
- Insurance claim letters, FEMA correspondence or inspection reports showing the damage
- Proof of where you lived, such as a lease, utility bill or tax bill
- IRS transcripts and recent pay records
- Statements from the servicer of any mortgage on the damaged home
Debts, including the old mortgage
Debt-to-income works the same way as on any FHA loan, with one important exception. If you're buying a new home, the lender may leave the payment on your destroyed home's mortgage out of your debts, as long as you're working with that loan's servicer on a plan for it and any property insurance proceeds are applied to that mortgage.
Without that exception, many survivors would be carrying two housing payments on paper. Talk with your servicer early about forbearance or other relief, because the new lender will want evidence of that conversation. Other debts, such as car loans and credit cards, count as usual.
Homes you can buy or rebuild with 203(h)
The home you buy or rebuild must be a one-family home or a unit in an FHA-approved condominium project, and you must live in it as your primary residence. The statute behind 203(h) refers to a dwelling designed for a single family, so two- to four-unit buildings don't fit this program. A replacement home doesn't have to be near the old one, so survivors can move closer to family or work.
The property must meet HUD's standards like any FHA home. If the damaged home can be repaired rather than replaced, 203(h) can be combined with a 203(k) rehabilitation loan, and a damaged home in the declared area can qualify for 203(k) regardless of its age, as long as it had been completed and ready for occupancy. In that case 203(k)'s financing limits apply.
See also
FHA costs, the filing window and paperwork
Weigh a 203(h) loan against insurance proceeds, FEMA assistance, SBA disaster loans and your servicer's relief options, which can sometimes be used together. A HUD-approved housing counselor can help sort through them at little or no cost.
A 203(h) loan is still a mortgage with FHA's usual costs and limits:
- FHA's upfront and annual mortgage insurance premiums apply
- The one-year window from the declaration date can close before insurance settles, unless HUD extends it
- The loan must fit FHA's county limit and finance a one-family home or approved condo
- Paperwork about the old home and its damage is required on top of a normal application
- The old mortgage doesn't go away; the exception only keeps it out of the debt ratio while you work with the servicer
Talk it through with Ruben
Compared with related FHA options
When a damaged home can be fixed instead of replaced, 203(k) is the program to look at, since 203(h) requires damage that calls for reconstruction or replacement.
Scroll sideways
| Feature | FHA 203(h) | Standard FHA purchase | FHA 203(k) |
|---|---|---|---|
| Who it serves | Survivors of a declared major disaster | Any eligible borrower | Buyers or owners making repairs |
| Use of funds | Buy a replacement or rebuild | Buy a home | Buy or refinance plus repairs |
| Property | One-family home or FHA-approved condo | One to four units or approved condo | One to four units, condo interiors, some mixed use |
| Deadline | Case number within one year of the declaration | None | None; the home must have been completed at least a year before the case number, unless disaster-damaged |
| Disaster-related credit problems | Can be viewed in context | Standard review | Standard review |
| Mortgage insurance | Upfront and annual premium | Upfront and annual premium | Upfront and annual premium |
Compare with
203(h) scenarios: hurricane, wildfire, flood and damaged credit
Illustrations only; every file depends on documents, the property and the lender.
- A family rented a house that a hurricane destroyed. They've moved in with relatives two states away and want to buy there. Because their rental was in the declared area and destroyed, 203(h) can be used for a home in the new state.
- A homeowner's house burned in a wildfire covered by a major disaster declaration, and insurance will pay down part of the old mortgage. With the servicer's cooperation, the lender may leave the old payment out of the debt ratio while financing a replacement.
- An owner's flooded home can be repaired rather than rebuilt, so 203(h) does not apply. A 203(k) loan may finance the repairs instead, since 203(k)'s rule that the home be at least a year old is waived for damaged homes in the declared area.
- A survivor's credit took hits while displaced after the storm. With a clean record before the disaster, the lender may treat those late payments as disaster-related.
See also
Timing an application after a disaster
Timelines after disasters are hard to predict, since appraisers, contractors, title offices and insurers can all be stretched. Starting early protects the eligibility window.
- Confirm that a major disaster declaration covers your former home's county, on FEMA's site or with the lender.
- Collect proof of residence and damage, such as insurance, FEMA or inspection records.
- Contact the servicer of any mortgage on the damaged home and keep its written response.
- Apply with an FHA lender that offers 203(h). The lender can request the FHA case number once you have chosen a replacement home or have plans to rebuild on your lot, and the one-year clock runs from the declaration date, so start early.
- Complete the appraisal and underwriting as with any FHA loan, along with the 203(h) documents about your former home and its damage.
203(h) myths: a loan, not a grant, and not only for owners
A file can run into trouble when the damage is hard to document, when the declaration is nearly a year old, or when the old mortgage was already seriously behind before the disaster.
- Myth: 203(h) is a disaster grant. Reality: It is FHA mortgage insurance on a loan you repay.
- Myth: Insurance money can go toward the new home. Reality: When the old payment is left out of your debts, property insurance proceeds must go toward the damaged home's mortgage.
- Myth: Any storm damage counts. Reality: The event needs a presidential major disaster declaration covering your former home, and the damage must require reconstruction or replacement.
- Myth: 203(h) is only for owners. Reality: People who rented the home that was destroyed can use it too.
Common questions
13 questions
Who can use an FHA 203(h) loan?
People whose home, owned or rented, was in a presidentially declared major disaster area and was destroyed or damaged badly enough that it must be rebuilt or replaced, and who also meet FHA's usual credit, income and property rules. The lender has to document both the location and the damage, so keep any insurance, FEMA or inspection records that show it.
Does a home bought with 203(h) have to be in the same area?
No. A replacement home can be anywhere. It must be a single-family home or a unit in an FHA-approved condo, and you must live in it as your primary residence.
How long after the disaster can I use 203(h)?
The FHA case number generally must be assigned within one year of the date the disaster was declared, unless HUD extends the period. A lender can request the case number only once you have applied with a specific property, either a replacement home or the lot you plan to rebuild on, so it helps to start early.
What if the disaster hurt my credit?
Under FHA rules, a lender may treat you as a satisfactory credit risk if your credit was good before the disaster and later problems are related to it. Late payments on the damaged home caused by the disaster can also be disregarded, as long as you were not already three or more months behind on that mortgage when the disaster struck.
What happens to the mortgage on my damaged home?
When you buy a new home, the lender may leave the old mortgage payment out of your debts if you are working with that loan's servicer on a plan for it and any property insurance proceeds go toward paying it down. Contact your servicer early, since its relief options are separate from a new loan.
Can 203(h) pay to repair my damaged home?
203(h) covers buying or reconstructing a home. To repair a damaged home, an FHA 203(k) loan can finance the work, and damaged homes in a declared disaster area are eligible for 203(k) regardless of the home's age. Refinancing is allowed when it is combined with rehabilitation.
What counts as proof that my home was destroyed or badly damaged?
The lender must document that your previous home was in the declared area and was damaged badly enough to need rebuilding or replacement, and that evidence goes in with the application. Insurance adjuster reports, FEMA inspection findings or letters, local condemnation notices and contractor or engineer assessments are the kinds of records that help. Pair them with proof that you lived there, such as a lease, utility bill or property tax bill.
How do I find out whether my county was in a declared disaster area?
FEMA lists every presidential disaster declaration with the counties, tribal areas and types of assistance included. 203(h) needs a major disaster declaration, so an emergency declaration on its own does not qualify. Your loan officer can help confirm the declaration and its date, which starts the one-year window for the FHA case number.
Is there a separate loan limit for 203(h)?
No. The loan must fit within FHA's regular limit for the county where the new home is located, the same limit that applies to a standard FHA purchase, and HUD resets those limits each January. Because 203(h) homes must be one-family homes or condo units, the one-unit limit is the one that matters. Your loan officer can look up the figure on HUD's FHA Mortgage Limits page.
Will I pay FHA mortgage insurance on a 203(h) loan?
Yes. HUD's mortgage insurance premium schedule applies to 203(h) loans the same way it applies to a standard FHA purchase: an upfront premium that can be financed into the loan, plus an annual premium paid monthly. 203(h) is not on HUD's short list of programs with different premium rules. Your loan officer can show the premium amounts for your loan.
Can I rebuild on my own lot with a 203(h) loan?
Yes. 203(h) covers reconstruction of the damaged home as well as buying a replacement. Rebuilding means construction plans, permits, a builder and inspections, so expect more steps than buying an existing home. If the structure can be saved rather than rebuilt, combining 203(h) with a 203(k) rehabilitation loan may be the better match, and your loan officer can explain how the funds would be released.
What if the one-year deadline has already passed?
Then 203(h) generally isn't available unless HUD has provided an additional eligibility period for that disaster. A standard FHA loan, a conventional loan or another program may still work, just without 203(h)'s disaster-specific flexibility on credit, records and the old mortgage. Ask your loan officer to check for an extension before ruling it out.
Can short-term work I took after the disaster count as income?
Yes. Under HUD's 203(h) rules, a lender may include short-term employment obtained after the disaster when figuring your effective income, which standard FHA underwriting treats more cautiously. You still need to document it and show you can keep up the payment. If your prior employer's records were destroyed and you're in the same or a similar field, W-2s and tax returns from the IRS can confirm your earlier work history.
This page explains how this type of loan generally works. Programs, guidelines and availability vary by lender and change often. Contact Ruben to see which options are available for your scenario today.