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. Entrepreneurship

    How Pawnshops Make Money

    Learn about the various ways that a pawn shop makes money, including the primary revenue sources of making personal loans and selling retail items.
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Credit & Loans

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  9. Credit & Loans

    Personal Loan Rates: 6 Ways to Find the Best Deals

    Terms can vary tremendously, so you better shop around, both in person and online.
  10. Credit & Loans

    Personal Loans: Compare the 6 Biggest Banks

    Need a personal loan? You may stop by one of these big banks for help. Their offerings vary in size, rates and loan types, which means you have options.
  1. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  2. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  3. Are personal loans bad for your credit score?

    Taking out a personal loan is not bad for your credit score in and of itself. However, there are several factors that come ... Read Full Answer >>
  4. Can Sallie Mae loans be forgiven?

    Sallie Mae loans, similar to other private loans, cannot be forgiven. As of 2015, there is no option for private student ... Read Full Answer >>
  5. Can Sallie Mae loans be consolidated?

    Sallie Mae loans can be consolidated with other federal loans, but not with private loans. For federal loan consolidation, ... Read Full Answer >>
  6. Are Sallie Mae loans considered federal loans?

    Sallie Mae is a private lender, so its direct loans are not federal loans. Basically, federal student loans consist of money ... Read Full Answer >>
Trading Center