FHA Home Improvement Loan

by Miranda Marquit, Contributor

One of the ways that you can increase the value of your home ― and possibly the enjoyment of your home ― is with the help of a home improvement loan. A home improvement loan allows you to borrow money so that you can make upgrades and repairs to your home. By making home improvements, you can be a more satisfied homeowner and increase the value of your property.

Keep in mind that it is not necessarily easy to get a home improvement loan. This is because most lenders will require you to have an adequate amount of equity in your home. If you don’t have sufficient home equity (because you made a small down payment and/or you haven’t repaid enough of your principal mortgage balance), it may be difficult to make the improvements that you need or want. The good news is that the U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), offers a program that makes obtaining a home improvement loan a little bit easier.

Qualifying for an FHA Title 1 Home Improvement Loan

The FHA does not actually originate home improvement loans ― it insures loans made by FHA-approved lenders. This government mortgage insurance protects the lender, thus encouraging them to issue home improvement loans. If a borrower defaults on their loan, the FHA makes up for the lenders’ loss.

There are certain guidelines and restrictions on FHA home improvement loans, including the following:

  • Limit of $25,000 for single family homes
  • Limit of $12,000 per family unit (up to $60,000 for multi family structures)
  • Loan term of no longer than 20 years
  • The borrower must own the property that’s being improved (or have a lease that’s at least 6 months beyond the end of the loan term)
  • The borrower can be purchasing the property that’s being improved, as part of a Land Installment Agreement

Unlike a conventional mortgage, there is no home equity requirement to obtain an FHA home improvement loan. There are also FHA home improvement loans that are designed for specific populations ― such as special loans for Native Americans, and loans for people who live in rural areas.

An FHA home improvement loan can be used for room additions and remodels, flooring, roofing, or simply to improve your house’s livability. It is also acceptable to use FHA funds to purchase or upgrade fire safety equipment and features.

An FHA home improvement loan can be used on single-family homes and multi-family homes, as well as manufactured homes. You may even be able to use an FHA loan on non-residential property. For those who are concerned about making home improvements, but lack substantial home equity, it may be a good idea to consider an FHA home improvement loan.