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) Loans
The 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 Loans
The 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 Program
If 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 Line
If 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.

Related Articles
  1. Retirement

    Understanding FHA Home Loans

    Don't be overwhelmed when filling out these forms. Find out what you need to do here.
  2. Home & Auto

    An Introduction To The FHA 203(k) Loan

    If you're looking at a fixer-upper, the Federal Housing Administration rehab loan may be the mortgage for you.
  3. Home & Auto

    Remodeling The Housing Finance Industry

    The meltdown in mortgage-backed securities is bringing about reform in home financing.
  4. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  5. Home & Auto

    Lending From A Loan Officer's Perspective

    Learn how a loan officer thinks, so that you can get the best and safest loan.
  6. Credit & Loans

    Explaining Leveraged Loans

    Leveraged loans are loans extended to companies or people who already have large amounts of debt.
  7. Home & Auto

    5 Luxurious Ways to Boost Your Home's Resale Value

    Not all renovations are created equal. Here are five that are most likely to make a property appreciate (and be appreciated by househunters).
  8. Personal Finance

    Choosing An In-Home Safe: Features To Look For

    What to look for in a box to protect your irreplaceable belongings.
  9. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  10. Budgeting

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
  1. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  2. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  3. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  4. What are some examples of simple interest loans?

    Two good examples of simple interest loans are simple interest car loans and the interest owed on lines of credit such as ... Read Full Answer >>
  5. How can I use the correlation coefficient to predict returns in the stock market?

    Simple interest is most commonly seen in short-term loans, such as those from payday lenders or pawn shops. You might see ... Read Full Answer >>
  6. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!