DISASTER LOANS FOR HOMES

The U.S. Small Business Administration (SBA) was created by Congress in 1953. At that time, Congress issued a mandate to the Agency to provide financial assistance to victims of disasters.

However, do not let the name, "U.S. Small Business Administration," confuse you. As a homeowner or a person who owns personal property, you may apply to SBA for a loan to help you recover from this disaster. The following information is designed to provide you with as much information as possible to make it easier for you to apply for a loan.

Where it is practical, assistance with the application process will be available and you will be told how to obtain this assistance when you request an application.

TYPE OF LOAN AVAILABLE
As an individual, there is one basic loan, with two purposes, available to you:

Personal Property Loan: This is limited to $20,000 and is meant to help you repair or replace the personal property you lost in the disaster, such as clothing, furniture, automobiles, etc. As a rule of thumb, personal property is anything which is not considered real estate or a part of the actual structure. This loan may not be used to replace ertraordinarily expensive or irreplaceable items, such as antiques, collections, pleasure boats, recreational vehicles, fur coats, etc.

Real Property Loan: Homeowners may apply for a loan of up to $100,000 to repair or restore their primary home to its pre-disaster condition. The loan may not be used to upgrade the home or make additions to it. However, in the event that city or county building codes require structural improvements, the loan may be used to comply with these requirements. Also, loans may be increased by as much as 20 percent to protect the damaged real property from possible future disasters of the same kind.

Note: A renter may apply only for a personal property loan.

Insurance Proceeds: If you have insurance coverage on your personal property/home, the amount you will receive from the insurance company will be deducted from the total damage to your property in order to determine the amount for which you are eligible to apply to SBA.

If you are required to apply insurance proceeds against an outstanding mortgage, the amount applied can be included in your disaster loan. But, if you voluntarily apply insurance proceeds against an outstanding mortgage, the amount applied cannot be included in your disaster loan. If you have not made settlement or are having trouble reaching an agreement with your insurance company, then you may apply for a loan in the full amount of your damages and give SBA an assignment on any insurance proceeds to be received.

Interest Rates on Loans: The law requires a test of your ability to obtain funds elsewhere in order to determine the rate of interest which will be charged on your loan. This "credit elsewhere" test also applies to applicants for personal property loans.

Applicants Determined to be Able to Obtain Credit Elsewhere: The interest rate to be charged is based on the cost of money to the United States Government, but will not be more than 8 percent per year.

Applicants Determined to be Unable to Obtain Credit Elsewhere: The interest rate to be charged will be 1/2 of the interest rate mentioned above, but will not be more than 4 percent per year.

Term of Loan: The maximum maturity, or repayment term of an SBA loan, is set at 30 years. However, the SBA will determine on a case-by-case basis how long you will have to repay the loan, based on your ability to repay.

How much can I borrow?
The amount of money which SBA will lend to you will be based upon the actual cost of repairing your damaged home and/or personal property or replacing your destroyed home and/or personal property, minus any insurance settlements or other reimbursements or grants. The total loan amount is subject to the limits set out above.

Must I use my own money or try to borrow from a bank before coming to SBA?
No.

I already have a mortgage on my home. I can't afford a disaster loan plus my current mortgage payment. Can SBA refinance my mortgage?
In certain cases, yes. in order to be eligible for refinancing of a mortgage, SBA must determine (a) that you are unable to obtain credit elsewhere, (b) that your property has been destroyed or substantially damaged, and the property will be repaired or replaced, and (c) that the amount to be refinanced will not exceed the amount of the real estate damage. An SBA loan officer can provide you with more detailed information on your specific situation.

What information do I need to submit for a home and/or personal property loan?
The necessary information is specifed in the loan application. In all cases, it includes an itemized list of personal property losses with repair or replacement costs of each item. It also includes a copy of your last 2 years' Federal income tax returns. If you have pictures of the damaged property, these are also helpful.

Will SBA check the losses I claim?
Yes. Once you have returned your loan application, an SBA loss verifier will visit you to determine the extent of the damage and the reasonableness of the loan request.

How soon will I know if I will get a loan?
That depends on how soon you file a complete SBA loan application. The SBA disaster relief program is not an immediate, emergency relief program such as Red Cross assistance, temporary housing assistance, etc. it is a loan program to help you in your long-term rebuilding and repairing. As a loan program, we have to know the cost of repairing the damage, be satisfied that you can repay the loan, and take reasonable safeguards to help make sure the loan is repaid. The SBA loan application asks for the information we need. The faster you can return it to us, with all the needed information, the faster we can work on it. We try to get all applications processed through to a decision not later than 60 days after they are filed. The ones that are filed early can be completed in a much shorter time. Applications are processed in the order received, so it is in your interest to file early. Be sure your application is complete because missing information is the biggest cause of delay.

How soon can I expect the money?
Loans over $10,000 have to be secured. We won't decline a loan just because you do not have enough collateral, but we do ask for whatever collateral is available. This means that after a loan is approved there are other steps that you have to take. Usually, the security consists of a first or second mortgage on the damaged real estate. After we approve the loan, we will tell you what has to be done (these are the loan closing documents, just like in any other secured loan). When the loan closing documents are returned to us, we can order the checks. Because these are subsidized loans, we will not give you all the money at once; we will give it to you in installments, as you use it to repair or replace the damage.

Should I wait for my insurance settlement before I apply to SBA?
No. If you do not know how much of your loss will be covered by insurance or other sources, SBA will consider making a loan for the full amount of the loss, provided that you will assign the insurance check to SBA in order to lower the amount of the SBA loan. However, total funds advanced by SBA to restore real property may not exceed $100,000 under any circumstances.

I would like to get a contractor's estimate for the cost of repairing damage to my home, but I'm having trouble finding one. Should I hold up my application until I get the estimate?
No, because you might miss the deadline for filing your application just because you are waiting for a contractor's estimate. If you have one, include it. SBA will verify any damage estimates listed on your loan application. Also, the sooner you file a completed application the sooner it can be processed by SBA.

If I receive a disaster loan, may I spend the money any way I want?
No. The disaster loan is intended to help you return your property to the same condition it was in before the disaster. Your loan will be made for specific and designated purposes. Remember that the penalty for misusing disaster funds is immediate repayment of 1 1/2 times the original amount of the loan. SBA requires that you obtain receipts and maintain good records of all loan expenditures as you restore your damaged property and keep these receipts and records for 3 years.

If my home is completely destroyed, can SBA lend me money to relocate my home somewhere else?
If you are unable to obtain a building permit to rebuild your home or replace it at its original site, the cost of relocating your home might be included in the loan amount. But, if you decide to relocate your home without being required to, an SBA loan can be obtained only for the exact amount of the damage.

I am a farmer. My home was damaged, and so were my barns, fences, and some of my crops. Am I eligible to apply for SBA assistance?
You may apply to SBA for a loan to cover the damage to your home and its contents only. However, it may be in your interest to seek assistance first from the Farmers Home Administration for all your damage.

Are secondary homes or vacation homes eligible for loans?
No, not as homes. They may be eligible for business disaster loans under certain conditions.

Are there any other limitations?
Yes. Generally, loans will not be made for damage to personal pleasure boats, planes, recreational vehicles, antiques, collections, etc. Also, amounts for landscaping, family swimming pools, etc., are limited.

Is there a minimum monthly payment, and when would the first payment be due?
SBA does not have a minimum monthly payment. Payments vary depending upon income and expenses, size of family, and other circumstances that may affect your repayment ability. Generally, the first payment is not due until 5 months after the date of the loan.

I had to remove debris from my property after the disaster. Can this expense be included in my loan application?
Yes, but your own labor and that of family members cannot be included. Amounts paid to others and any equipment rental can be listed as part of repairs to real estate. Remember that the maximum loan limit on real estate damage is $100,000, and debris removal is included in the limit.

May people over the age of 65 apply for help from SBA?
Yes. loans are made without regard to age.

I've heard that SBA loan applications are complicated and hard to complete. It this true?
No. The application form asks you the same information that a bank would ask you if you went to a banker to borrow money. if you need help, SBA personnel are available to explain the forms and give you assistance at no charge. You may use the services of an accountant or attorney if you wish, but be sure they are reliable and that their fees are reasonable. If you choose to use an attorney or an accountant, you must report their fees on your SBA loan application form.

Are damages to cars and mobile homes eligible?
Generally, yes. The loan would be only for uninsured losses.

Do I need flood insurance to get a loan?
If you are in a special flood hazard area, you must have flood insurance before we can disburse a loan. The amount of insurance required is the insurable value of the property in the special flood hazard area but not to exceed the maximum flood insurance available under the National Flood Insurance Act.