Hopefully you never need to know the answer to this question. But if it comes up, it’s something you’ll be glad you knew in advance because it gets pretty complicated. If a tornado, earthquake, hurricane, freak ice storm, or some other natural disaster comes your way, you’ll have plenty of things to worry about even if you know exactly what to expect and what needs to be done in regards to your home.
We’ll cover the basics here, but we encourage you to do more research on any areas you would like more information on so that you can be prepared if a natural disaster were to strike.
The topics we’ll cover first fall under the category of loan origination issues. The first, which most people will probably qualify under, is a loan that was closed prior to the disaster. If your home was purchased with a VA loan and then was damaged by a natural disaster, the loan is still eligible for the VA guaranty. In all disaster areas, the VA strongly encourages lenders to extend every possible option to forbear a foreclosure for borrowers in distress.
One thing many do not realize is that prepayments or extra principal payments above and beyond the minimum monthly mortgage payment can actually be brought up and count as your mortgage payment in the event of a natural disaster. It’s also possible to have the loan terms modified without prior approval from the VA if certain circumstances permit (one of which happens to be a natural disaster). The VA also requests that late fees be waived and credit reporting be postponed for loans affected by the disaster, it is up to the lender to decide whether to honor this request.
For a VA loan, it is the loan holder’s responsibility to evaluate damage to a property from a natural disaster and advise the borrower on possible actions they can take. The loan holder then presents a report to the VA Regional Loan Center. Thankfully, the VA requires that a home be sufficiently insured against hazards, and the proceeds from the insurance can be the line that connects the dots in a disaster situation.
There will always be a few people caught in that awkward position of having had the home they’d like to buy appraised, and then damaged in a natural disaster before they closed on the loan. For those in this situation, all hope is not lost; that loan can still be eligible for a VA guaranty. However, in order for it to be eligible, there are some things that are needed.
First, you’ll need two certifications: a lender’s certification and a veteran’s certification. The purpose of the two certifications is for the two parties to both affirm that they have looked at the property and found that is was either not damaged in the disaster or it was returned to its pre-disaster condition. Before the home can be purchased with a VA loan, it needs to reach VA appraisal minimum property requirements.
In addition to the certifications, a VA loan summary sheet (VA Form 26-0286) must be submitted. If there is any indication that the value of the property will be lower than it was before the disaster, even after repairs, then the VA appraiser must update the fair value estimate.
Finally, there needs to be a certification that the lender has confirmed that the borrower’s income and employment situation has not changed since the loan application was submitted.
So if you’re a VA loan holder, remember to contact your mortgage company as soon as possible regarding any losses that might have occurred during the disaster.
One important thing to remember is that you are not excused from making your monthly mortgage payments under any circumstances, even if your home is a pile of rubble.
Contact your insurance company as soon as possible (especially if your home is a pile of rubble), but do not be hasty in making a settlement. Get quotes for repairs of structural damage and anything else, and make sure that any checks from your insurance company are made payable to you and only you, or possibly to your mortgage company if the check is for damage to the home.
You’ll also want to contact FEMA (Federal Emergency Management Agency). They can help you find resources to help cover loans and obligations that might be very difficult for you to cover after a disaster.
A natural disaster can definitely throw kinks in the loan closing process, but many of these obstacles can be overcome.