FHA Title 1 loans are a little-known financing tool for home renovations and repairs. The FHA is well known to help beginners buy a house, and Title 1 loans are a way for homeowners to finance ongoing improvements and renovations to their property.
Homebuyers can also add a Title 1 loan to their purchase mortgage to repair a property they are purchasing.
What is an FHA Title 1 loan?
An FHA Title 1 loan is a fixed rate loan used for home improvements, repairs, and rehabilitation. (Adjustable rate loans are not available.) Loans under $ 7,500 are generally unsecured; your signature will suffice. Larger loan amounts will require your home to be used as collateral. You get the loan from an FHA approved lender.
“HUD says the money can be used for anything that makes your home “essentially more livable and useful.” This includes the purchase of household appliances.“
The definition of “improvements” in the FHA Title 1 loan is quite broad: the Department of Housing and Urban Development says the money can be used for anything that makes your home “essentially more livable and useful.”
This includes the purchase of household appliances, such as dishwashers, wall ovens, refrigerators and freezers. Home improvements to expand accessibility for people with disabilities are also permitted, as are energy-efficient upgrades such as solar power systems.
FHA Title 1 Loan Details:
The maximum loan term – the length of time you have to repay it – is 20 years on a single-family or multi-family structure; 15 years on a prefabricated house on a foundation; and 12 years for a prefabricated house without a foundation
The maximum loan amount is $ 25,000 for a single family home; $ 12,000 per unit on a multi-family structure, up to a total of $ 60,000; $ 25,090 for a prefabricated house on a foundation; and $ 7,500 for a prefabricated house without a foundation
An FHA insured product known as 203 (k) ready is often used to finance major repairs and renovations
Requirements for an FHA Title 1 loan
There are few HUD-specific barriers to overcome in order to obtain an FHA Title 1 loan. Specific requirements include:
The house must have been built and occupied for at least 90 days
You must own the house or have a long-term lease
The loan proceeds must be verified as being used for specifically planned property improvements
An annual FHA mortgage insurance premium of $ 1 per $ 100 of the loan amount will be charged or incorporated into your interest rate
There is no minimum credit score or income requirements set by HUD. You don’t even need to have equity in the house.
“It’s always a good idea to shop around for more than one lender, just to be sure you get the best deal possible.“
The interest rate and additional terms are determined by the lender you use. This is one of the reasons it’s always a good idea to shop around for more than one lender, just to be sure you get the best deal possible.
Don’t let the details drag you down
As with any government program, there are a few acronyms and a bit of bureaucracy built into FHA Title 1 loans. Here are some quick facts to help clear up any confusion:
The Federal Housing Administration, or FHA, is part of the US Department of Housing and Urban Development, or HUD.
Neither the HUD nor the FHA offers loans; instead, they insure private lenders against losses due to defaults. This encourages lenders to give FHA loans.
FHA loans are intended to help people with modest financial means buy and improve their homes. They are not intended for luxury homes or fancy upgrades like outdoor pools and fireplaces.
How To Find An FHA Title 1 Loan Lender
You will apply to a mortgage lender for any FHA loan, but not all lenders deal with it. To find an FHA-approved lender in your state, go to HUD website.