Who Is Eligible for an FHA Disaster Loan Modification
When a disaster strikes, it is crucial that FHA borrowers contact their lenders as quickly as possible in the aftermath to make arrangements for the existing mortgage. Yes, disaster-based home loan relief is possible, but it is not automatic and you must apply for this relief with your lender.
The HUD official site states that borrowers may receive a formal or informal loan forbearance based “solely on location” of the property within a federal disaster area. Such borrowers may be eligible for further relief if they meet specific criteria listed on the FHA and HUD official sites under the heading “Eligibility for Disaster Loan Modification.”
That eligibility includes the following:
- The mortgage was current OR;
- The mortgage was less than 30 Days past due as of the date of the applicable federal disaster declaration;
- The lender confirms the borrower’s income “is equal to or greater than it was prior to the Disaster using a recent pay stub for income, W-2, bank statement or other documentation reflecting the amount of income;”
- Alternatives to income documentation include having the borrower complete a three-month Trial Payment Plan (TPP), “which will confirm that their income has returned to pre-disaster levels;”
- The lender must agree to waive the borrower’s accumulated late fees.
Remember, when any natural disaster strikes, you may find your lender willing to work with you to manage any missed or late mortgage payments in the aftermath, but more formal loan forbearance measures offered under the FHA Disaster Loan Modification program require the borrower to be in a federally-declared disaster area.
The best thing to do is to contact your lender as soon as possible, assume that it may take more time that you anticipate to repair your home, and take steps to avoid further complications in your mortgage-don’t agree to insurance settlements that seem rushed or that you do not understand fully.
Finally, remember that FHA home loan rules state that a borrower is permitted to receive one Permanent Loss Mitigation option for a home in a federal disaster area, so it’s best to discuss your options with the lender at length before making up your mind about the right course of action for repairing or replacing the home.
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