Closing Your Mortgage After a Natural Disaster

Justin McHood
October 31, 2012

Storms happen.

So do earthquakes, fires, tornadoes and several other kinds of natural disasters.

What happens when you’re in the middle of either buying a new home or refinancing your current home and a natural disaster strikes?

The simple answer: You’ll need to wait for the disaster to pass and then get the property inspected before your loan will close.

Your home is your collateral

When getting a mortgage, the bank is lending money to you and holding the house as collateral. In the event that the collateral has been damaged or destroyed, it doesn’t make sense for the bank to lend money against the asset.

As an example: If you have gone through the entire loan process, gotten fully approved and are planning to go close your loan on a Friday, what happens if a natural disaster happens on Thursday?

You won’t be closing your loan that Friday.

Once the natural disaster passes, you’ll need to coordinate with your loan officer to get the property re-inspected by the appraiser and submit the inspection form to the lender for approval and proof that the structure has not been damaged in any way. Assuming that the property has not been damaged and the inspection report comes back clean, the lender will then reset the closing date.

FEMA-declared disaster areas

Normally, lenders will monitor Federal Emergency Management Agency announcements as to which areas of the country are going through some kind of natural disaster. While it’s possible for a lender to hold closings in an area that isn’t declared a disaster area by FEMA, it’s common for lenders to coordinate pretty closely with FEMA with regards to which ZIP codes are affected.

Note:  FEMA can declare a disaster a week after the event, which means your lender could just be “on hold” for a week before getting a re-inspection done.

Regardless of any FEMA declarations, in the event that a property has incurred any damage after the initial appraisal report, most lenders will have it re-inspected prior to closing. It’s also possible that FEMA never declares a certain ZIP code or area a disaster area, but the lender requires a re-inspection anyway.

For those people who have been affected by Superstorm Sandy and were in the process of getting a mortgage, expect to go through the property re-inspection process after the storm clouds lift.

And in the event that you’re in the process of getting a mortgage and any kind of disaster strikes, expect your lender to put your closing on hold until it has verified that there isn’t any damage to the property.


Justin McHood is America’s Mortgage Commentator and lives in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, and LinkedIn. He is happy to answer any mortgage-related questions that you may have.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.