Maybe you love your home but wish you had an extra bathroom. Or, you may have a disability and want to lower your kitchen cabinets to make them more accessible. In either case, taking out an FHA Title 1 Home Improvement Loan can be a smart option—but it may not work for everyone.
Title 1 Loans are loans distributed by banks, but they are guaranteed by the U.S. Department of Housing and Urban Development (HUD). They can be used to pay for improvements of residential, non-residential, and commercial properties. Because they’re backed by HUD, they often offer low interest rates and favorable repayment terms, making your renovation project more affordable.
Below, learn how these loans work, what their eligibility requirements are, and what they can be used for.
When should you use this type of loan?
A Title 1 Loan can be a good option if you need to make home repairs but you're unable to secure a home equity line of credit (HELOC) because the equity in your home is limited,
How much you can borrow and how long you have to repay it is dependent on the type of home you have:
- Single family home: You can borrow up to $25,000 and have a repayment term as long as 20 years.
- Manufactured/mobile home: You can borrow up to $7,500 and have up to 12 years to repay it.
- Multifamily property: If you own a building that houses two or more families, you can borrow up to $60,000 and have a repayment term as long as 20 years.
The process for taking out a Title 1 loan is often faster than a home equity loan. Once the lender reviews your loan application, you’ll get an answer within a few days.
Are you eligible?
While there are no income or credit score requirements, you must meet the following criteria to qualify for a Title 1 loan:
- You must be the owner of the property, or be leasing the property (your lease must extend at least six months beyond the loan’s final repayment date)
- You must have been living in the property for at least 90 days
- Your debt-to-income ratio must be 45% or less
- You must work with a Title 1-approved lender
What you can use the money for
You can use an FHA Title 1 Home Improvement Loan for the following expenses:- Accessibility improvements: If you have a disability, you can use the loan to improve your home’s accessibility. For example, you could lower your cabinets, widen doorways to accommodate a wheelchair, or install ramps.
- Livability upgrades: You can use the loan to pay for anything that makes your home more livable or useful. You can even use them for dishwashers, refrigerators, or ovens, as long as they are built into your home and are not free-standing.
- Energy conservation: If you’re making renovations to improve your home’s efficiency, such as by installing new windows, adding solar panels to your home, or adding a layer of insulation to an attic, you can use a Title 1 loan to pay for it.
- Architectural and engineering costs: You can use the loan to cover the cost of permit fees, title examination costs, appraisal fees, and inspection fees.
You can use the loan to pay for materials if your doing the labor yourself, or you can use it to hire a contractor. However, the loan can’t be used to pay for luxury upgrades, such as installing a swimming pool or a fireplace.
When you apply for the loan, you’ll have to submit either a plan for the work you intend to do or your contractor’s proposal before you can be approved.
Other ways to finance home repairs
While FHA Title 1 Home Improvement Loans can be a useful financing option, they may not be the best choice for you. You’re limited in how much money you can borrow, and if you’re planning on taking out $7,500 or more, the loan is secured by your home.
An alternative to consider is taking out a personal loan. Most personal loans have higher limits, allowing you to borrow up to $50,000. And they’re unsecured, so you don’t have to put up your property as collateral. If you have good credit, you can qualify for a loan with low interest rates and have up to seven years to repay it and use the money however you see fit, without restrictions on what home renovations you can do.
If you think a personal loan is right for you, check out Citizens Bank. They offer loans with competitive rates and a quick approval process. Plus, you can get a rate quote in as little as two minutes.