- Installing new flooring or a new roof
- Replacing the plumbing or heating system
- Installing or replacing appliances, such as dishwashers or ovens, that are built into the house
- Adding exterior ramps
- Remodeling rooms for wheelchair access
- Adding appliances that increase energy efficiency
- Installing solar panels
You can’t use a Title 1 loan for luxury items, such as swimming pools or outdoor fireplaces, or for cosmetic upgrades.
Title 1 funds can also be used to cover some of the extra costs that come with home renovation, like engineering or architectural, title, permit and appraisal fees.
FHA Title 1 loans: limits and terms
Loans up to $7,500 are available for all eligible properties with only your signature, meaning you won’t need to put up any property as collateral. The maximum amount you can borrow varies depending on the property type and the number of units in the home. FHA Title 1 loans don’t have a prepayment penalty.
For a single-family home, you’re limited to $25,000 with a secured Title 1 loan. The maximum loan term is 20 years. The table below shows the loan amounts and terms available for different Title 1 loans:
| Number of units | Secured maximum loan amount | Loan terms |
|---|---|---|
| 1 | $25,000 | 6 months to 20 years |
| 2 | $24,000 | 6 months to 20 years |
| 3 | $36,000 | 6 months to 20 years |
| 4 | $48,000 | 6 months to 20 years |
| 5 | $60,000 | 6 months to 20 years |
Tip. If your repairs are on a single-family home and are going to cost more than $25,000, the FHA offers 203(k) loans that allow you to borrow up to $35,000 for short-term home repairs and up to 110% of the home’s value (after the repairs are completed) for more substantial repairs. But keep in mind that you would have to refinance in order to use the 203(k) loan on a home you already own.
You can also use a Title 1 loan for various other property types that either aren’t traditional houses or aren’t residences at all (like safety equipment). The table below shows the loan terms available for these alternative property types.
| Property type / purpose | Maximum loan amount | Loan terms |
|---|---|---|
| Nonresidential buildings, like a detached garage or shed | $25,000 | 6 months to 20 years |
| Manufactured home that is real property | $17,500 | 6 months to 15 years |
| Manufactured home that isn’t real property | $7,500 | 6 months to 12 years |
| Historic preservation | Lesser of $15,000 per unit, or $45,000 | 6 months to 15 years |
| Fire safety equipment | $50,000 | 6 months to 20 years |
If you have more than one Title 1 loan, your total outstanding balance can’t exceed the maximum loan amount for the property or purpose type you’re using that has the highest maximum.
FHA Title 1 loan requirements
To qualify for an FHA Title 1 loan, potential borrowers must meet certain broad requirements. Unlike many mortgage programs, there are no hard credit score requirements, and homeowners with little or no equity can still qualify.
However, lenders will make sure potential borrowers meet Title 1 loan requirements. Luckily, these requirements are fairly simple:
Ownership You must own the home or have a lease on it that extends at least six months past when the Title 1 loan will be repaid.
Credit You must not be delinquent or in default on another federally backed loan program (as demonstrated by a CAIVRS check).
Income and employment You must be able to prove that you have the income to repay the loan in regular monthly installments and can maintain a debt-to-income (DTI) ratio of 45% or below.
Occupancy You need to have occupied the home for at least 90 days.
No appraisal is required. Title 1 loan borrowers also don’t need to participate in housing counseling, which is required for some other federally backed loans.
How to apply for a Title 1 loan
If you think an FHA Title 1 loan is right for you, you’ll first want to search the U.S. Department of Housing and Urban Development’s (HUD) lender list for approved lenders near you. The search tool will allow you to narrow down the list to show only HUD-approved lenders in your city that offer Title 1 loans.
Once you’ve chosen a few to contact, the FHA Title 1-approved lenders will direct you to fill out an application. You’ll also need to prepare a detailed description of the proposed repairs, as Title 1 loan money can be used only on the work described in your application.
If you’re using a contractor, give your lender a copy of the proposal or work contract that describes the repairs to be done and the cost estimates. If you’re doing the work yourself, send your lender a written description of the repairs, a materials list and costs.
FHA Title 1 loans pros and cons
Pros
Loose qualification requirements. FHA Title 1 loans don’t have set credit score requirements, and many types of properties are eligible for financing.
No equity needed. While many home improvement loans are based on home equity, these loans can work for homeowners with little to no equity.
Unsecured loans available. Loans of less than $7,500 don’t require collateral, meaning your property is safe from the possibility of foreclosure.
Low, fixed interest rates. The FHA requires lenders to offer fixed interest rates and charge the market rate.
No prepayment penalties. Since you won’t be penalized for paying the loan off early, you’ll have more flexibility in how and when you can pay it off. Even just one extra payment a year can lead to big savings in the long run.
Doesn’t have to be your primary residence. Unlike other FHA loans, Title 1 loans don’t require you to live in the home as your primary residence unless the property in question is a manufactured home.
Cons
Must use an approved lender. Only FHA-approved lenders can issue Title 1 renovation loans. If your current lender isn’t on the list, you can’t use them.
Must pay an insurance premium. The FHA charges an upfront mortgage insurance premium, which is 1.75% of the loan amount, and an ongoing annual insurance premium between 0.45% to 1.05%, depending on your loan-to-value ratio (LTV) and loan term.
Must limit spending to critical repairs. While home equity loans typically have few strings attached, Title 1 loans can be used only for the repairs outlined in the loan application.
Alternatives to an FHA Title 1 loan
But what if a Title 1 loan doesn’t meet your needs? If you don’t have a high enough credit score for conventional loans or enough equity to qualify for a home equity loan or home equity line of credit (HELOC), don’t panic. You still have many options beyond a Title 1 loan.
Government home improvement loans and grants
As mentioned above, the FHA 203(k) program is a similar program that can be used to finance home improvements that cost up to 110% of the home’s value (after the repairs are completed).
But there are also many other government-backed home improvement loans and grants available, including:
- If you’re low-income:
- HUD’s HOME Investment Partnerships Program and Community Development Block Grant Program provide funds that allow states, cities and counties to help low- and moderate-income homeowners rehab their homes.
- The Residential PACE clean energy program backs renovation loans to homeowners making energy efficiency or renewable energy improvements. The debt is attached to the property, rather than the homeowner, which can ease the burden for borrowers who move or sell the home within a few years.
- VA renovation loans allow you to put zero down and don’t have minimum credit requirements or mandatory mortgage insurance payments.
- VA Disability Housing Grants help qualifying disabled veterans make changes to their housing that improve livability, such as widening doors or adding ramps.
- The Native American Housing Improvement Program provides grants of up to $60,000 for the renovation and repair of substandard housing.
- Section 184 Indian Home Loans are federally guaranteed, fixed-rate mortgages issued by participating lenders for up to 30-year terms. Their low down payment requirement — only 2.5% — puts them in reach for many more potential borrowers than other loans.
- The Section 504 Home Repair program provides home improvement loans and grants to very low-income homeowners, as well as to elderly (over 62) homeowners for repairs that target health and safety hazards.
Frequently asked questions
How can I figure out FHA Title 1 home improvement loan rates?
While FHA Title 1 lenders must charge market rates, each lender may quote you a different Title 1 loan rate. Be sure to shop around, inquiring at multiple HUD-approved lenders in your area. FHA Title 1 loan interest rates aren’t subsidized by the federal government, though organizations in some areas may offer reduced-rate loans through the Title 1 program.
Can I combine a Title 1 loan with an FHA 203(k) loan?
Yes, a Title 1 loan can be used with the FHA’s 203(k) rehabilitation loan program. The Title 1 loan will cover the cost of repairs, while the 203(k) loan typically covers the property’s purchase price.
Can I piggyback an FHA Title 1 loan on a mortgage?
Yes, you can take out an FHA Title 1 loan at the same time as a new purchase mortgage or alongside a mortgage refinance.
