Around 80% of homeowners in areas devastated by flooding from Hurricane Harvey don’t have insurance policies that will cover much of the damage done to their properties. Federal disaster loans offer victims one pathway toward recovery, but obtaining that financing could be a difficult, drawn-out endeavor.
The full extent of damage from Harvey, which is still ravaging the Gulf Coast, has yet to be calculated, but there’s no doubt that affected homeowners in the region will face hefty bills just to make their houses inhabitable again.
Federal Disaster Loans
In an attempt to better handle these bills, the federal government has long provided eligible consumers with disaster relief loans.
These loans, issued by the Small Business Administration Office of Disaster Assistance, can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets.
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The loans have assisted those affected by previous disasters such as Hurricane Katrina and Superstorm Sandy.
Politico reports that in the case of Katrina, SBA issued more than $ 11 billion in loans, while Sandy saw another $ 2 billion in loans issues.
There are two types of loans available to homeowners in Texas:
• Homeowners may borrow up to $ 200,000 to repair/replace disaster damaged primary residence. The loans may not be used to upgrade homes or make additions, unless required by local building code.
• Homeowners may borrow up to $ 40,000 to repair/replace damaged personal property.
These loans will carry an interest rate of 4% if borrowers can not obtain credit elsewhere. For those who can obtain credit elsewhere, the interest rate on the SBA loan will not exceed 8%.
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In some cases, SBA can refinance all or part of a previous mortgage when the applicant does not have credit available elsewhere and has suffered substantial disaster damage not covered by insurance.
Consumers who make improvements that help prevent the risk of future property damage caused by a similar disaster, you may be eligible for up to a 20% loan amount increase above the real estate damage, as verified by the SBA.
A Tough Time
Obtaining these loans can be burdensome and difficult for homeowners.
SBA, which works with FEMA, creates Disaster and Business Recovery Centers in areas of natural disasters. At the centers, home and business owners can apply for loans or get counseling on their options.
Politico reports that in the past technical difficulties have affected consumers’ ability to obtain loans.
For instance, after Katrina and Sandy the agency didn’t have enough staff to keep up with the loan process, creating delays that lasted months.
One homeowner tells The New York Times that she applied for a SBA loan following Superstorm Sandy. The loan, she recalls, would have cost her more than $ 900/month to repay.
To make matters worse, because she had qualified for the loan she was no longer eligible for a FEMA grant. In the end, she received help from the NY Rising Community Reconstruction Program, but it took her two years to obtain the $ 36,000 relief.
In an effort to avoid a similar issues with delays, SBA has already called on temporary workers to assist with applications following Harvey.
So far, Politico reports the agency has received 1,210 applications.
“The SBA is prepared — for the long haul — to respond to the recovery needs of residents and business owners rebuilding their lives in the aftermath of Hurricane Harvey,” a spokesperson for the agency said.