FHA Home Loan Options In Natural Disaster Areas
May 16, 2024
There are many articles about FHA loan options for those who have had houses damaged or destroyed by a wildfire, flood, or other natural disaster.
But what about FHA borrowers who have applied for FHA home loans, have made the offer on the house, but have yet to close the deal with disaster strikes?
After a Natural Disaster
Much depends on whether the borrower lives in an area named or about to be named a federal disaster area.
FHA loan rules have much to say about properties within a federal disaster area, but those who have had property damage but don’t live in such an area may have to find alternative options to what’s presented below.
What’s s PDMDA?
HUD 4000.1 refers to the procedures required in a Presidentially Declared Major Disaster Area (PDMDA) for “individual assistance,” which includes a requirement that a damage inspection report be created to locate and itemize the damage to a property that is due to be sold to the borrower.
According to HUD 4000.1, the inspection report “must be completed by an FHA Roster Appraiser even if the inspection shows no damage to the Property, and the report must be dated after the Incident Period (as defined by FEMA) or 14 Days from the Incident Period start date, whichever is earlier.”
FHA loan rules also say the same appraiser who completed the original review should be used whenever possible.
FHA Streamline Refinance Loans
The above procedure is for FHA purchase loans. What about borrowers who wanted to use FHA streamline refinancing to refinance a property before the disaster?
HUD 4000.1 says, “Streamline Refinances are allowed to proceed to closing and/or endorsement without any additional requirements.”
Damage Amounts
HUD 4000.1 says that for the sale to proceed after the damage and its appraisal, some conditions could force the sale to stop completely until repairs are made.
What kind of conditions? One example is when a home is damaged and uninhabitable, and the damage requires more than $5,000 to correct.
In cases where there is damage below $5k and the home is habitable, HUD 4000.1 instructs the lender to ensure repairs are completed and to close the deal. Sometimes, the damage may not be completely repairable at closing time, and a repair escrow may be needed, according to HUD.gov.
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But what about FHA borrowers who have applied for FHA home loans, have made the offer on the house, but have yet to close the deal with disaster strikes?
After a Natural Disaster
Much depends on whether the borrower lives in an area named or about to be named a federal disaster area.
FHA loan rules have much to say about properties within a federal disaster area, but those who have had property damage but don’t live in such an area may have to find alternative options to what’s presented below.
What’s s PDMDA?
HUD 4000.1 refers to the procedures required in a Presidentially Declared Major Disaster Area (PDMDA) for “individual assistance,” which includes a requirement that a damage inspection report be created to locate and itemize the damage to a property that is due to be sold to the borrower.
According to HUD 4000.1, the inspection report “must be completed by an FHA Roster Appraiser even if the inspection shows no damage to the Property, and the report must be dated after the Incident Period (as defined by FEMA) or 14 Days from the Incident Period start date, whichever is earlier.”
FHA loan rules also say the same appraiser who completed the original review should be used whenever possible.
FHA Streamline Refinance Loans
The above procedure is for FHA purchase loans. What about borrowers who wanted to use FHA streamline refinancing to refinance a property before the disaster?
HUD 4000.1 says, “Streamline Refinances are allowed to proceed to closing and/or endorsement without any additional requirements.”
Damage Amounts
HUD 4000.1 says that for the sale to proceed after the damage and its appraisal, some conditions could force the sale to stop completely until repairs are made.
What kind of conditions? One example is when a home is damaged and uninhabitable, and the damage requires more than $5,000 to correct.
In cases where there is damage below $5k and the home is habitable, HUD 4000.1 instructs the lender to ensure repairs are completed and to close the deal. Sometimes, the damage may not be completely repairable at closing time, and a repair escrow may be needed, according to HUD.gov.
------------------------------
RELATED VIDEOS:
Reverse Mortgages Are Ideal for Senior Borrowers
The Pros and Cons of Subprime Mortgages
A Good Faith Estimate Provides Mortgage Information
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