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How Title 1 FHA Home Improvement Loans Work


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TERMINOLOGY

The Federal Housing Administration (FHA), in conjunction with the Department of Housing and Urban Development (HUD), provides Title I FHA home improvement loans to homeowners needing alterations, repairs or structural improvements. The FHA makes it easier for homeowners to obtain loans by guaranteeing the money lent out. If a homeowner defaults on paying back money owed, the FHA takes responsibility and pays off the debt. By working with lenders, the FHA makes funding available for borrowers who meet eligibility requirements. The funding allows homeowners to make their residence livable and safe. People who utilize the home improvement loans are those with credit issues, first-time home buyers and investors.

Eligibility

To qualify for the FHA Home Improvement Loan, a borrower must own the property, be leasing the property or be purchasing the property needing the improvements. Common repairs and/or renovations range from repairing the roof and fixing heating and cooling to repairing structural damages to the property. General repairs such as repainting walls and replacing cabinets or changes such as adding additional rooms would not qualify for the Title I loan. The homeowner of a single-family residence can qualify for up to $25,000 over 20 years for improvements. Homeowners in multifamily residences can qualify for up to $12,000 per unit over 20 years for improvements.

Approval Process

To participate in the program, applicants must complete an application with an approved lender. The FHA provides a complete list of approved lenders on its website. If the applicant is applying with a lender that is not on the approved list, the lender should recommend a lending institution that works with the Title I program. Title I loans have a higher interest rate than traditional loans. Some lenders may offer reduced interest rates as a way for residents to work on improving a community. Borrowers are qualified based on eligibility requirements and creditworthiness. In addition, the FHA charges the borrower a fee for the cost of insurance. If an applicant is approved, funds will be given directly to the borrower or to the company selected by the borrower to make the improvements.

Selecting a Company

Once a borrower has been approved for the loan, he or she should research and select a reputable company to do the repairs. He or she can check out the reputation of a company by contacting the Better Business Bureau or the local Chamber of Commerce. The Better Business Bureau can provide information to let a consumer know if any complaints have been filed against a company about its business practices or work. It is important for the borrower to know that neither the FHA nor the lender can be held accountable or held liable for work that is not completed correctly.

Repayment

The home improvement loan functions just as a traditional loan. The borrower has repayment terms that are outlined in the loan agreement. As previously mentioned, if a borrower defaults on the loan, the FHA will take responsibility in paying off the debt to the lender. Just as with all FHA loans, the home improvement loan does not have any penalties for prepayment or paying off the loan early.