"Can a Disaster Relief Grant or Loan Cover My Down Payment on a Conventional Mortgage?"

The deposit shows up on your bank statement a few weeks after the storm, with a long reference number and a description from the U.S. Treasury you have never seen before. The amount is one FEMA worked out, and a letter from FEMA explains what it is for. Now you are reading listings again, and the question is whether that deposit can become the start of your next home.

A lump-sum disaster relief grant or loan can cover the full contribution a conventional purchase would otherwise ask you to make from your own money. Fannie Mae's Selling Guide says so in B3-4.3-07, and it adds that no contribution of your own is required when you use one. The letter awarding the money and the bank statement showing it arrive are the paperwork. The rest of your cash to close gets planned around that deposit.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, NMLS #483943, through C2 Financial Corporation.

What does Fannie Mae's rule actually say?

Fannie Mae has a section for this. B3-4.3-07, Disaster Relief Grants or Loans, revised 04/01/2009 says that lump-sum disaster relief grants or loans may be used to satisfy Fannie Mae's minimum contribution requirement, and that no contribution of your own is required.

On some conventional purchases, Fannie Mae wants part of the money to come out of your own savings before gifts or grants fill in the rest. B3-4.3-06, Grants and Lender Contributions, revised 05/07/2025 lays it out in a table. For a one-unit home you will live in, no contribution of your own is required and every dollar can come from a grant. For a two- to four-unit home you will live in, with a loan above 80 percent of the value, the table asks for 5 percent from your own funds first. B3-4.3-04, Personal Gifts, revised 02/04/2026 says the same for gifts.

The disaster relief section stands apart from those tables. It names grants and loans together, it does not sort them by property type, and it says the contribution is not required at all. So it does two things the grant table does not: it covers a disaster loan as well as a grant, and it removes the 5 percent of your own funds on a two- to four-unit home.

What counts as disaster relief money?

Fannie Mae does not define the term, so the descriptions below come from the agencies that send the money.

FEMA. FEMA's Individuals and Households Program provides money and direct services to people in a declared disaster area who, in FEMA's words, have "uninsured or underinsured necessary expenses and serious needs" (FEMA, Assistance for Housing and Other Needs). The housing side includes Home Repair or Replacement, which FEMA describes as money to help repair or replace an owner-occupied, disaster-damaged primary residence. It also includes Rental Assistance while you are displaced. FEMA says this money is grant funding that does not have to be repaid.

FEMA's own fact sheet says what the money is for: "FEMA assistance is not a substitute for insurance and cannot compensate for all losses. Grants from FEMA are intended to meet basic needs and supplement an applicant's disaster recovery expenses" (FEMA, Am I Eligible for FEMA Assistance if I have Insurance?). FEMA's grant helps with part of what insurance did not cover, up to FEMA's limits.

The letter that follows the deposit says what the money may be spent on, and FEMA asks you to use it that way. Spending it on something else can make you ineligible for future assistance, and in some cases FEMA may ask for the money back (FEMA, Using Your FEMA Individual Assistance Funds). If your letter does not plainly cover putting the money toward a replacement home, please ask FEMA before you commit it to a purchase.

SBA. The Small Business Administration makes disaster loans to homeowners and renters to repair or replace property damaged in a declared disaster (SBA, Physical damage loans). These are loans with a monthly payment, and Fannie Mae's section covers loans as well as grants. The payment belongs in your debt-to-income ratio like any other monthly obligation.

Insurance proceeds are a different kind of money. A settlement from your homeowners or flood policy does not come in under the disaster relief section, and the claim settlement letter is what shows where it came from.

What paperwork shows where the money came from?

B3-4.2-02, Depository Accounts, revised 12/14/2022 defines a large deposit as a single deposit over 50 percent of your total monthly qualifying income. On a purchase, when that deposit is being used for the down payment, closing costs or reserves, the lender has to document that it came from an acceptable source. Which deposits an underwriter asks about walks through that review.

Freddie Mac speaks to this directly. Single-Family Seller/Servicer Guide Section 5501.1, revised 08/05/2026 lists the only acceptable sources for a deposit that needs verifying. One of them is funds awarded to you, and the first example it gives is disaster relief funds, provided the source is not an interested party to the sale. An interested party means the seller, the builder or an agent on the sale, and FEMA is none of those.

When you're ready, please provide the FEMA determination or award letter, all pages, please. It ties the deposit on your statement to the program it came from. If the money came from an SBA disaster loan, please provide the complete loan authorization and agreement, all pages, because the underwriter needs the monthly payment as well as the source.

Please also provide the two most recent monthly statements for every account you will use for the purchase, all pages, even if the last page is intentionally left blank. B3-4.2-01, Verification of Deposits and Assets, revised 05/04/2022 asks for the most recent full two-month period on a purchase.

If the relief money went into a relative's account because yours was not usable after the disaster, please tell me early. The path the money took has to be documented, and that is far easier while the transfer records are fresh.

How do I plan the rest of my cash to close around it?

The down payment is one of four pieces. Closing costs, prepaid items such as the first year of homeowners insurance and the escrow deposit, and the money you keep after closing make up the rest. The relief money covers the contribution. Where the rest comes from is a plan we build together.

A seller credit pays closing costs and prepaids, within a cap that depends on how much you are putting down. B3-4.1-02, Interested Party Contributions, revised 05/07/2025 says Fannie Mae does not permit those contributions to make your down payment, meet reserve requirements, or meet the minimum contribution. How much a seller can pay toward your closing costs covers the caps.

A grant from a state or local program can go toward the down payment, closing costs or reserves under B3-4.3-06, documented with its award letter. How down payment assistance programs are structured explains the difference between a grant, a forgivable second and a repayable second.

A gift from family works the way it always does, with a gift letter and the donor's transfer record.

What counts as mortgage reserves explains how an underwriter looks at the balance left after closing. Deciding how much of the award becomes the home and how much stays in the bank is your decision, and we can work it out together.

How is this different from the FHA 203(h) program?

FHA has a program built for this situation, and the FHA 203(h) disaster mortgage is worth reading if your home was in a Presidentially-Declared Major Disaster Area. Section 203(h) waives FHA's minimum required investment, which is FHA's term for the cash it normally asks you to put in yourself. It allows a loan up to 100 percent of the adjusted value, which is the lower of the price and the appraised value. The FHA loan has to be started within one year of the declaration, unless FHA extends it.

The conventional route works differently. There is no separate program and no one-year window in B3-4.3-07. The loan is still an ordinary conventional purchase, so the usual loan-to-value limits apply, and mortgage insurance applies the way it does on any conventional loan above 80 percent loan-to-value.

Pricing both, and looking at the payment and the cash to close side by side, is how you tell which one fits. You choose the option that works best for you.

The steps, in order

1. Please keep every letter FEMA or SBA sends you, together in one folder.
2. Please read what your award may be used for. If a replacement home is not plainly covered, please ask FEMA in writing before you spend it.
3. You'll want to leave the money where it landed. Moving it between accounts, or into cash, adds a step the underwriter has to trace.
4. We decide together how much of the award becomes the home and how much stays in the bank. That decision shapes the price range, so it comes before the search.
5. Then we build a pre-approval from reviewed documents, with the relief money, any seller credit and any program grant already in the plan.

What goes wrong

Spending the relief money and then planning to buy. The award is a lump sum when it arrives. Once it has been spread across hotel nights, a used car and a storage unit, the underwriter cannot count it toward the purchase.

Treating the SBA loan as free money. The proceeds help with the purchase and the payment counts against you every month.

Mixing a repayable insurance advance with grant money. If FEMA advanced temporary housing money against a delayed insurance claim, that advance goes back to FEMA when the claim pays. Spending it on a down payment creates a bill later.

What does this look like with numbers?

The numbers below are made up to show the mechanism, and they are not a quote.

Say you owned a home that was destroyed in a declared disaster, your insurance did not cover the whole loss, and FEMA awarded you Home Repair or Replacement money as one lump sum. You find a two-unit home to buy for $300,000, you will live in one unit, and you plan on putting 15 percent down on a conventional loan. The seller agrees to a credit toward closing costs.

Purchase price	$300,000
Down payment at 15 percent	$45,000
Closing costs and prepaid items	$9,000
Total cash the purchase needs	$54,000
Seller credit toward closing costs	$7,000
Lump-sum disaster relief grant	$38,000
From your own savings	$9,000

The grant covers $38,000 of the $45,000 down payment. Your savings cover the other $7,000 of the down payment and $2,000 of the closing costs. The seller credit covers the remaining $7,000 of closing costs. The underwriter sees the FEMA letter beside the $38,000 deposit, the seller credit on the settlement statement, and your two months of statements showing the $9,000 was already yours.

The loan is above 80 percent of the value on a two-unit home, so the grant table in B3-4.3-06 would ask for 5 percent of the price, $15,000, from your own funds before grant money could be added. You have $9,000. B3-4.3-07 says that contribution is not required when the money is a lump-sum disaster relief grant.

What to do next

You can price a purchase for your own scenario without a credit pull, and see what the payment and cash to close look like with the relief money counted. Choose the option that works best for you.

If you'd rather talk first, you're welcome to call me. I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, and this is the kind of file I'd rather see early.

Nothing here is a loan approval, a denial, or a commitment to lend, and none of it is tax advice. The agencies revise these sections, so the linked text is the one to rely on.

Common questions

Can I use a FEMA grant as a down payment on a conventional loan?

Yes. Fannie Mae Selling Guide B3-4.3-07, Disaster Relief Grants or Loans, says a lump-sum disaster relief grant or loan may be used to satisfy the minimum contribution requirement, and that no contribution of your own is required. The lender documents the source with your FEMA determination letter and the bank statement showing the deposit.

Does an SBA disaster loan count as a down payment source?

Fannie Mae's section names lump-sum disaster relief grants or loans, so an SBA disaster loan paid out as a lump sum falls within it. Because it is a loan, the monthly payment is part of your debt-to-income ratio.

Do I still have to put in my own money if I use disaster relief funds?

Fannie Mae says no contribution of your own is required when a lump-sum disaster relief grant or loan is used. The gift and grant tables in B3-4.3-04 and B3-4.3-06 are different. They ask for 5 percent of your own funds on a two- to four-unit home you will live in when the loan is above 80 percent of the value. The disaster relief section does not include that condition.

What paperwork proves where the disaster money came from?

The award or determination letter from FEMA, or the loan authorization and agreement from SBA, plus the bank statement showing the deposit. Fannie Mae B3-4.2-02 treats any single deposit over 50 percent of your monthly qualifying income as a large deposit that has to be sourced. Freddie Mac Section 5501.1 lists funds awarded to you, with disaster relief funds as its example, among the acceptable sources of a deposit.

Is this the same as the FHA 203(h) disaster loan?

No. FHA 203(h) is a separate program under HUD Handbook 4000.1. It waives the cash FHA normally asks you to put in yourself and allows financing up to 100 percent of the value FHA measures the loan against. The FHA loan has to be started within one year of the disaster declaration. The conventional route under Fannie Mae B3-4.3-07 is not a program and has no one-year window. It allows disaster relief funds to serve as your contribution on an ordinary conventional purchase.

Estimates and educational information are not a loan approval or commitment to lend.