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Want to add a new bathroom to your home this summer? Maybe it’s time to replace that 20-year-old roof, or a sagging foundation needs shoring. You might find help through a HUD/FHA Title 1 home improvement loan. Unlike home equity loans or lines of credit, the Title 1 program doesn’t require you to have built up any equity in your home.
A No Equity Home Improvement Loan
Through the FHA Title 1 home improvement loan program, homeowners can qualify for renovation loans of up to $25,000 without worrying about whether they have enough equity to take out a home equity loan or home equity line of credit (HELOC).
Homeowners need loans such as these because home renovation projects tend to be expensive. In its 2023 Cost vs. Value report, Remodeling Magazine said it costs an average of $57,090 to add a bathroom to a home. Replacing a roof costs an average of $47,414, while even a relatively minor project, like replacing a home’s siding, costs an average of $15,348.
Most homeowners don’t have that kind of money lying around. So they often turn to home equity loans, tapping the equity they’ve built in their homes to pay for improvements.
The challenge comes when homeowners don’t have any equity built in their homes.
FHA Title 1 Loan Requirements
You can use a Title 1 loan to improve single and multifamily homes, manufactured homes, and non-residential buildings.
This type of loan makes sense for anyone taking on a single, moderate home-improvement project. And it’s an especially good choice if your home has lost value since you purchased it. You won’t have to worry about low or negative equity when applying for these loans. Lenders don’t require that appraisers determine how much your home is worth before approving you for a Title 1 loan.
FHA Title 1 Loan Limits & Loan Terms
Title 1 loans have fixed-rate loan terms that range from 6 months to 20 years. And don’t worry about paying off your loan early; Title 1 loans come with no prepayment penalties, so you can pay it off whenever you’d like without taking a financial hit.
Rates on these loans, much like with a standard mortgage, vary depending on a host of factors, including the strength of your credit.
The amount of loan you can borrow depends on the number of units your home contains.
For a single-family home, the maximum amount you can borrow under the Title 1 program is $25,000. If you want to renovate a multifamily building, you can take out a Title 1 loan of up to an average of $12,000 per living unit up to a maximum of $60,000.
|Maximum Available Borrowing Amount
|Multifamily 2 Units
|Multifamily 3 Units
|Multifamily 4 Units
|Multifamily 5 Units
No collateral is necessary on a Title 1 home improvement loan of $7,500 or less, but if you take out a Title 1 loan for more than $7,500, you are required to put up your home as collateral.
This means that the lender could foreclose on your home if you don’t make your monthly payments.
FHA Title 1 Approved Home Improvements
You can use Title 1 loans to finance permanent property improvements that protect or improve the livability or functionality of your home. However, you can’t use Title 1 loans for luxury items like installing a new hot tub or swimming pool.
|FHA Title 1 Approved Home Improvements
|FHA Title 1 Unapproved Home Improvements
|ADA Accessibility Improvement
|Energy Efficient Improvements
It’s best to check with your lender to determine if your planned project is allowed under the Title 1 program.
» MORE: See today’s refinance rates
How to Get an FHA Title 1 Home Improvement Loan
If you’ve previously applied for an FHA loan or any other mortgage loan, you’re already familiar with the Title 1 home improvement loan application process. Like a typical mortgage loan application, your lender will run your credit and require that you provide proof that you can repay the loan on time. This means your lender will likely request documents such as recent paycheck stubs, bank statements, W-2s and income-tax returns.
The FHA (Federal Housing Administration) does not originate loans directly. FHA loans are available through banks or other financial institutions that are HUD-approved. Rates and closing costs typically vary among lenders. However, HUD does set specific criteria you have to meet in order to qualify for an FHA Title 1 loan.
FHA Title 1 Loan Qualifications
Some of the most vital Title 1 qualification rules include:
- You must have occupied residential property for at least 90 days
- You must own the property or be a long-term renter
- HUD sets no minimum credit score requirement, but lenders typically have their own requirements
- HUD sets a maximum debt-to-income (DTI) ratio of 45%
- You cannot have defaulted on another federally guaranteed loan (like FHA, USDA or VA)
You can use the HUD-approved lender list to check if specific lenders are qualified to lend the FHA Title 1 loan or search lenders by location.