FHA Title 1 Loans: What You Need to Know

FHA Title 1 loans are a little-known financing tool for home improvements and repairs. The FHA is well-known for helping first-timers buy a home, and Title 1 loans are a way for homeowners to finance permanent property improvements and renovations.

Home buyers can also piggyback a Title 1 loan onto their purchase mortgage to fix up a property they’re buying.

What is an FHA Title 1 loan?

An FHA Title 1 loan is a fixed-rate loan used for home improvements, repairs and rehab. (Adjustable-rate loans aren't offered.) Loans under $7,500 are usually unsecured; your signature will suffice. Larger loan amounts will require using your home as collateral. You get the loan from an FHA-approved lender.

The definition of FHA Title 1 loan “improvements” is fairly broad: The Department of Housing and Urban Development says the money can be used for anything that makes your home "basically more livable and useful.”

That includes buying appliances, such as dishwashers, built-in ovens, refrigerators and freezers. Home improvements that aim to expand accessibility for disabled people are also allowed, as are energy-efficient upgrades such as solar energy systems.

FHA Title 1 loan details:

• The maximum loan term — the length of time you have to pay it back — is 20 years on a single-family or multifamily structure; 15 years on a manufactured home on a foundation; and 12 years for a manufactured house without a foundation

• The maximum loan amount is $25,000 on a single-family home; $12,000 per unit on a multifamily structure, up to a total of $60,000; $25,090 for a manufactured home on a foundation; and $7,500 for a manufactured home without a foundation

• An FHA-insured product known as the 203(k) loan is often used to fund major repairs and renovations

» MORE: Best lenders for FHA loans

Requirements for an FHA Title 1 Loan

There are few HUD-specific hurdles to clear to get an FHA Title 1 loan. Specific requirements include:

• The house must have been built and occupied for at least 90 days

• You need to own the home or have a long-term lease

• Loan proceeds must be verified as used for specifically intended property improvements

• An annual FHA mortgage insurance premium of $1 per $100 of the amount of the loan will be charged or built into your interest rate

• You must have a debt-to-income ratio of 45% or less

There are no minimum credit score or income requirements set by HUD. You don’t even have to have equity in the home.

The interest rate and additional terms are determined by the lender you use. That’s one reason it’s always a good idea to shop more than one lender, just to be sure you’re getting the best deal possible.

Don’t let the details drag you down

As with any government program, there are a few acronyms and a bit of bureaucracy built into FHA Title 1 Loans. Here are some quick facts to help clear up any confusion:

• The Federal Housing Administration, or FHA, is a part of the U.S. Department of Housing and Urban Development, or HUD.

• Neither HUD nor the FHA offers loans; instead, they insure private lenders against losses from loan defaults. That encourages lenders to make FHA loans.

• FHA loans are intended to help people of modest financial means to buy and improve their homes. They are not for luxury homes or fancy upgrades like pools and outdoor fireplaces.

How to find an FHA Title 1 loan lender