Title 1 FHA Home Improvement Loans Explained

The US Department of Housing and Urban Development has a number of FHA home improvement loans to help eligible borrowers make home repairs. The Title 1 FHA loan, specifically, is given by a lender approved by the program to loan private funds. The loans are given based on the borrower's ability to repay the loan, as determined by credit history, job stability and other factors. These are not government loans; they are from private lenders who are approved by the government.

Reason for FHA Home Improvement Loans 

Title 1 loans are usually given for improvements that make a home more livable and safe. For example, they may be given to implement fire safety changes. Other common uses are: roofing, structural changes and repairs, insulation and energy efficiency. The loans are not for general improvement such as removing carpet for hardwood or putting in a pool. The loans are also not for refinancing or paying off mortgages. Either single or multifamily residences may be eligible for the loans, but the type of repairs that qualify will vary based on the structure.

Cost of FHA Home Improvement Loans

Unlike many FHA home loans, the interest rates on Title 1 loans are not low. They are typically fixed rate loans determined by market trends and the creditworthiness of the borrower. There may be lenders in your community who are willing to provide reduced interest rates. For example, communities looking to expand energy efficiency may provide incentives to Title 1 lenders. There is no penalty for prepayment, or paying off the loan early, for this program. This is a standard across most FHA home loans.

Limits on FHA Home Improvement Loans

There are limits on both the size and length of a loan. A single family home is limited to $2,500 over 20 years. A multifamily building is limited to a loan of $12,000 per unit not exceeding $60,000. Multifamily loans also face a time limit of 20 years. Other types of manufactured homes additionally face loan requirements and limits. You can check with your local zoning office to see how your home would be qualified. You will also find the FHA has many resources in your area to help you understand your qualifications. In all cases, the process is detail-oriented. Do not expect the process to be overly simple.

Who is Eligible for FHA Home Improvement Loans

Typically, the owner of the property is the one seeking the loan. If you are not the owner, you must be leasing the property for at least 6 months after the expiration date of the loan. A person purchasing a property under contract may be eligible for the loan depending on the type of contract. There are requirements for structures where the owner does not live in the property. For example, if the loan is too high and the residence not occupied by the owner, the owner must be able to show a certain amount of equity in the property.

How to Secure an FHA Home Improvement Loan

There are eligible Title 1 lenders in your area. You may find these through banks, mortgage companies, credit unions and community organizations. If your bank does not participate, they will likely be able to recommend a participant who will take your application.