Your home needs improvements, but you don’t have the cash lying around to make it happen. If you don’t have equity in your home, you might think you are out of luck. No lender will provide you with a home equity loan without adequate equity. There’s one more option, though, FHA Title 1 loans. These loans offer the money you need without the requirement of equity.
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Home Equity
You may be able to borrow up to $25,000 for home renovations with the FHA Title 1 loan. This is irrespective of any equity you have in the home. This is good news for many homeowners today that lost value in their home during the housing crisis. As the market tries to make a comeback, many homeowners find the need to make necessary home improvements but lack the equity in their home. The FHA Title 1 Loan sets out to help make a difference.
The Allowed Changes
Any changes you make using the FHA Title 1 loans must be permanent. There isn’t a specific dollar amount they must cost, but they must have a permanent effect on the home. Basically, the improvements must enhance the home’s livability.
Just what improves a home’s livability? It could be replacing defective plumbing, replacing the roof, or adding another bedroom because your family has outgrown the home in its current state. Each of these enhancements has an effect on the home and its livability.
The one definite change you cannot make is anything that deals with luxury. For example, adding a swimming pool or hot tub would not be an allowed change. Before you make any changes, you should discuss it with your lender to see if it’s an approved renovation.
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How to Get FHA Title 1 Loans
Getting FHA Title 1 Loans works much the same way as your purchase loan. You’ll need to find an FHA Title 1 lender. Next, you’ll complete a loan application, disclosing your personal identifying information alongside your financial information. You’ll disclose your income, assets, and liabilities as well as your employment history.
The lender will determine your ability to secure the loan based on your ability to repay it. There aren’t specific credit scores or debt ratio maximums. Each lender can have their own requirements. If one lender turns you down, don’t give up; try another lender.
The Miscellaneous Requirements
The amount you may borrow depends on the effect on your home value. Your lender will likely use the expertise of their appraiser to determine how much the home value will increase as a result of the necessary changes. The more the value increases, the better your chances of approval.
The maximum amount anyone can borrow on FHA Title 1 Loans is $25,000. There is no minimum, but any loan over $7,500 must use the home as collateral. In other words, if you default on the loan, your home could be at risk. The loan is a fixed rate loan and can have a maximum term of 20 years. This means that you can make small or large changes and have 20 years to pay it off.
FHA Title 1 Loans are a great way to get work done on your home that you need done but cannot afford. Keep in mind that you will pay interest on the loan, just as you do a regular mortgage. The quicker you can pay the loan off, the less it will cost you in the long run. Click here to find an FHA Title 1 lender in your area.
