Loan Modification

Finance Home Improvements with FHA Title 1 Loans

By Gina Pogol

Home improvements are more popular than ever as people forgo moving up and settle for upgrading their current homes instead. But home equity loans aren’t so easy to get. FHA does allow you to refinance, adding extra amounts for proposed improvements. This is called a 203(k) loan.

Your maximum refinance loan amount for a 203(k) mortgage (subject to FHA loan limits) is the lowest of these three calculations:

• Your current mortgage(s) on the property plus rehabilitation and certain closing costs.
• The current property value plus rehabilitation costs.
• 110% of the improved value multiplied by FHA’s 96.5% maximum loan-to-value ratio.

However, if you don’t need a ginormous loan for your home improvements, an FHA Title 1 loan may do the trick with less hassle. You can’t finance gold-plated toilets or swimming pools, but you can borrow up to $25,000 for up to 20 years on approved renovations, such as:

• Making structural changes or reconstructing
• Modernizing and improving your home’s function
• Eliminating health and safety hazards
• Improving your home’s appearance and eliminating obsolescence
• Reconditioning or replacing your home’s plumbing
• Installing a well and/or septic system
• Adding or replacing roofing, downspouts, or gutters
• Adding or replacing flooring
• Making site improvements or adding landscaping
• Making the home handicap accessible
• Undertaking green renovations or energy conservation projects

Some of the advantages of Title 1 Loans are:

• Low closing cost.
• Easy peasey processing. If your loan is less than $7,500, all you need is a signature–there isn’t even a lien recorded against your home.
• You are allowed to do the work yourself (if you are qualified to do it).
• Manufactured homes are eligible too (finance a max of $17,500 for 15 years).

Understand that these loans are funded by private lenders, not by HUD or FHA. That means the interest rates and loan fees are determined by supply and demand. Be smart, and check online with different FHA-approved mortgage lenders to find the best mortgage rates, just as you would for any other home loan.

Full post as published by FHA Mortgage Guide on June 07, 2010 (boomark / email).