Are you trying to make home renovations, but you don’t have the available cash? If you don’t qualify for a traditional home equity loan, the FHA Title 1 Home Improvement Loan may be a good option. This FHA loan provides funds for home renovations to homeowners that don’t have any equity in their home.
You must be a low to middle-income borrower in order to be eligible for the program. Keep reading to see what it takes to qualify for it.
What is the FHA Title 1 Home Improvement Loan?
Private lenders can lend you money using the FHA Title 1 program. HUD insures the loans, so that the lender has backup should you default on the loan. But you must prove that you can afford the monthly payments, just as you do for any other loan.
You can use the Title 1 loan on a single family home, manufactured home, or even a non-residential structure. The improvements you make must improve the property in some way. Whether it makes it livable or makes the property more useful – it has to have a purpose.
One thing you can’t do with the Title 1 loan is purchase the property. You must already own the property in order to apply for the Title 1 loan. The loan’s proceeds may only be used to make the home more livable or to make it easier for the residents. For example, if someone that lives with you has a disability, you can use the loan’s proceeds to make the home wheelchair accessible. You cannot use the funds for any type of luxurious accommodations or renovations.
Applying for a Title 1 Loan
You don’t apply for the Title 1 loan through HUD or the FHA. You must find an FHA approved lender that offers the Title 1 loan. Not all FHA lenders offer it, so you may have to shop around.
You may borrow up to $25,000 on the Title 1 loan. If you borrow $7,500 or less, you don’t need to use your home as collateral. Any loan between $7,000 and $25,000 must use your home as collateral, though.
You’ll need to satisfy a lender’s requirement for a minimum credit score. You must also have a decent employment history, have lived in the home for 90 days or more, and have a debt ratio of 45% or less. Each lender may have additional requirements on top of the flexible FHA requirements.
You don’t need any equity in the home to qualify for the FHA Title 1 loan. You do need to prove that the changes you make will increase the home’s value, though.
All Title 1 loans are fixed rate loans and have terms that range from 6 months to 20 years. Borrowers also pay 1% of their loan amount in mortgage insurance. You can pay the entire amount upfront at the closing or roll the cost into your loan. If you do roll the cost into your loan, you will likely pay a higher interest rate as the lender will have to pay HUD the insurance for you.
The FHA Title 1 loan is a great way to get a few things done on your home, especially if you are a low-income family. Discuss your options with a couple of FHA approved lenders before you decide which loan is right for you.Click to See the Latest Mortgage Rates»