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FHA Title I loans are primarily used for home repairs and alterations for single-family and multiple-family properties, but they can be used for manufactured homes and for construction of non-residential property as well. FHA Title I loans are great for funding relatively modest repairs and renovations.
As with all Federal Housing Administration loan programs, the FHA doesn’t actually loan money. It does insure the loan, though, which encourages lenders to provide loans with more favorable terms, since they are taking on less risk. To know whether this type of loan is the right choice for you, we provide an overview of the Title 1 program.
- What is an FHA Title 1 Loan and how does it work?
- What are permitted improvements for FHA Title I loans?
- How Do I Qualify for a HUD FHA Title 1 Loan?
- Where Can I find FHA Title I lenders?
What is an FHA Title 1 Loan and how does it work?
The FHA’s Title I loan program lends homeowners money for home improvements and alterations on their single-family homes, manufactured homes or multifamily units. These loans can also be used for historic preservation or fire safety equipment, and people with disabilities can use Title I loans to make their homes more accessible.
Title I loans are insured by the FHA, but they are issued by individual lenders. In other words, you must apply for a Title I loan with an approved Title I lender. The Department of Housing and Urban Development maintains a list of approved lenders.
Title I loans are second or subordinate loans. This means that it is a loan in addition to (not instead of) your primary mortgage. They are unsecured loans, if the amount being borrowed is $7,500 or less. This means that you can’t lose your home to foreclosure if you fail to pay back the loan. However, if the loan amount is more than $7,500, the loan must be secured by your property.
The maximum loan amounts and loan terms (how long you have to repay the loan) are as follows:
|Type of Property||Max Loan Amount||Min - Max Loan Terms|
|One-unit Residential||$25,000||6 months - 20 yrs and 32 days|
|Two-unit Residential||$24,000||6 months - 20 yrs and 32 days|
|Three-unit Residential||$36,000||6 months - 20 yrs and 32 days|
|Four-unit Residential||$48,000||6 months - 20 yrs and 32 days|
|Five unit+ Residential||$60,000||6 months - 20 yrs and 32 days|
|Nonresidential Property||$25,000||6 months - 20 yrs and 32 days|
|Manufactured Homes qualifying as real property||$25,090||6 months - 15 yrs and 32 days|
|Manufactured Homes not qualified as real property||$7,500||6 months - 12 yrs and 32 days|
|Historic Preservation for Residential Dwelling||lesser of $15,000 per dwelling or $45,000 across all properties||6 months - 15 yrs and 32 days|
|Fire-safety Equipment||$50,000||6 months - 20 yrs and 32 days|
What are permitted improvements for FHA Title I loans?
Title I loans must “substantially protect or improve the basic livability of the property,” according to HUD guidelines. In other words, Title I loans can be used for things that make your home more livable and useful, but are not intended for luxury upgrades.
Generally, improvements have to be permanent and hard-wired into the home. So, a built-in oven would most likely be covered, but a stand-alone barbeque on the patio would not. Swimming pools, outdoor fireplaces and other luxury-type items aren’t considered acceptable property improvements for Title I loans.
Accessibility improvements for people with disabilities are also considered acceptable. Potential improvements in this category could include:
- Remodeling kitchens and bathrooms for wheelchair access
- Building exterior ramps
- Widening doorways
- Lowering cabinets
You can also use a Title I loan for energy efficiency improvements. Title I loan proceeds can only be used for the reasons you establish in your loan application. If you are using a contractor, you can use the loan for the contractor’s materials and labor. If you do the work yourself, you only have to pay for the materials.
How Do I Qualify for a HUD FHA Title 1 Loan?
To qualify for a Title I loan, you must own the property you’re planning to improve, or have a long-term lease on the property that lasts at least six months after you plan on completing the improvements. In some cases, you can qualify if you are purchasing the property under a land installment contract. For a residence, applicants must have lived in the home for at least 90 days.
Title I loans have no income requirements and no minimum credit score. You do need to show that you have enough income to pay for the loan, and your credit will be reviewed by your lender to confirm your employment and that you aren’t delinquent or in default on any federally guaranteed loans, such as a student loans.
Lenders will also look at your debt-to-income ratio, which is the amount of monthly payments you make on debt compared to your gross monthly income. The maximum allowed debt-to-income ratio is 45%.
Borrowers are not required to have equity in the home, which makes Title I loans a viable option for homeowners who just recently purchased their home. This makes it an excellent renovation financing option for those who might not otherwise meet the minimum LTV on traditional home equity loans.
Where Can I find FHA Title I lenders?
You can find a list of approved Title I lenders in your area by visiting the HUD website. Before you visit the lender, you may want to get an idea of how much the costs of improvements are by getting bids from contractors, or finding the cost of the materials you need if you’re taking the DIY route.
The lender will have you complete an application, where you detail the improvements you want to make on your property and provide insight into your financial profile. It's a good idea to contact multiple lenders to ensure you get the best interest rate.
You can also use a Title I loan in conjunction with other FHA-backed mortgage loans, such as the 203(k) Rehabilitation Mortgage. Your lender can help you determine which loan will best meet your home improvement needs.
Ultimately, Title I loans can be an affordable way to pay for modest home improvements if you don’t have enough equity in your home. You can make your home more livable and energy-efficient, which can also increase its value. Contact a lender to see whether an FHA Title I loan is the right move for you.