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As a homeowner, there will come a time when you'll feel the need to make some home improvements. Maybe it's because your property is due for an upgrade or you need additional rooms for your growing family. Others renovate because they plan to turn their homes into rental properties. Whatever the reason is, home improvement projects can help increase your quality of life and the value of your property.
However, home improvement projects can be very expensive. And although it's best to save up money to cover the costs, doing so is not always possible.
The good thing is there are a lot of financing options that can help provide the cash you need. An example of such an option is the FHA home improvement loan. In this article, we're going to discuss how to qualify for an FHA home improvement loan and provide some tips that you should know first before applying.
FHA loans are some of the most popular mortgages in the market. The relaxed qualification requirements make it easier for homebuyers with lower credit scores to get into homeownership. But what if you already owned a house and want to do some permanent property improvements? Then this is where the FHA Title 1 Home Improvement Loan comes in.
FHA Title 1 Home Improvement Loans cannot be used to purchase a home. They can only be used to update a property that you already have. You also cannot use it to fund luxury renovations such as pools.
According to The Department of Housing and Urban Development (HUD), improvements eligible for an FHA Title 1 loan must "protect or improve the basic livability and utility of the property." These improvements can include built-in appliances, accessibility for a disabled person, or energy-conserving modifications.
These loans often use your property as collateral. But if you borrow less than $7,500, you can get an unsecured loan. Eligible borrowers can borrow up to $25,000 with a term of up to 20 years for a single-family home. With manufactured homes on a permanent foundation, the maximum loan amount is $25,090. If it's not on a permanent foundation, then the limit is $7,500.
Just like regular FHA loans, an FHA Title 1 Home Improvement Loan is also backed by the Federal Housing Administration. Since it's guaranteed by the government, there's less risk for the lenders which allows them to give more leniency with the requirements. Here are some of the requirements homebuyers must comply with to become eligible borrowers:
An FHA Home Improvement Loan doesn't require an appraisal. You also don't need to participate in housing counseling which is often required for other loans backed by the federal government.
The term "home improvement loan" often refers to two types of loans: home equity loan and personal home loan. The loan amount you'll get varies depending on the type of home improvement loan you choose. Moreover, lenders can impose different rates and terms on each loan type. It's important to understand your options to determine which one suits your needs best.
Home equity loans are secured loans that use the equity in your home as collateral. They are fixed-rate loans with terms that last for 5 to 20 years. You'll need a home appraisal to qualify for a home equity loan. This is because the loan amount you'll receive will depend on the value of your property, the equity you have, and your financial situation. The maximum loan amount you can get can be up to 80% of your equity.
Personal home loans are unsecured loans offered by banks, credit unions, and private lenders. They also have a fixed interest rate, but the terms are just within two to five years. A personal home loan does not usually need an appraisal and has more lenient requirements. However, the maximum loan amount you can get is just up to $20,000.
With any type of home loan for purchasing, just because you can qualify for a bigger loan amount doesn't always mean that you need to take it. The same rule goes for home improvement loans.
When you borrow money for repairs and remodeling, make sure that it's an amount you can pay back in a timely manner. If possible, only make improvements that will increase the value of your home or save you more money in home expenses in the long run. This way you can earn some of your money back.
Once you have decided the size of the home improvement loan you need, meet with different private lenders and compare interest rates. Many lenders offer the same packages but offer different interest rates.
If you want faster approval on loans to finance permanent property improvements, then choose a personal loan.
A home equity loan often takes a month or more before getting approved, while a personal loan might only need a few days. But regardless of the financing option you choose, it's always better to apply a few months before you start working on your property improvement so you can budget accordingly.
However, even though personal home loans have faster approval, they are only good for smaller renovations. If you're planning a more luxurious home improvement, then a home equity loan might be better for you.
If you're having trouble qualifying for a home equity, personal, or FHA home improvement loan, there are still other financing options that might fit you.
A cash-out refinance allows you to get access to your home equity and use it for home improvements. But keep in mind that applying for a refinance is much like applying for a new mortgage that replaces your current one. You'll have a new loan term, interest rate, and balance. And if not done properly, you might end up paying more and for longer than you expect.
A home equity line of credit (HELOC) is somewhat like a regular home equity loan. Your equity will be used as collateral and you can take out as much as 80%. The only difference is that a HELOC doesn't have a fixed interest rate. This means that you'll have variable monthly payments which can be a hassle for some homeowners.
The Energy-efficient mortgage program is another home improvement loan from the Federal Housing Administration. Eligible borrowers must use this loan to fund cost-effective and energy-efficient home improvements such as solar panel installations or insulating your walls.
Saving up money for your home improvements might take a long time and requires you to have lots of patience. However, doing so will eliminate financing fees and make it easier for homeowners to stay within their budget.
Home improvements can cost a lot of money. That's why careful consideration is needed to ensure that you get what you want without sacrificing everything else. Additionally, there are a lot of ways for you to fund them. It's only a matter of choosing and qualifying for the one that fits your needs.
Need help in getting a home improvement loan? Ebenezer Mortgage Solutions can assist you with your mortgage application as well as give you access to the best deals in Florida. Call us today at (813) 284-4027 so we can get started.
