How Do I Qualify for an FHA Home Improvement Loan?

If your home is in need of repairs to make it more livable, such as improvements for energy efficiency or a new, more modern bathroom or kitchen, an FHA Title 1 loan is one option to help finance those repairs. While many borrowers opt for a home equity loan, an FHA Title 1 loan offers an option for those with little to no home equity. But, if no equity is required, how do you qualify for an FHA home improvement loan? While there is no hard credit score requirement and equity is not necessary, there are other broad requirements, such as a debt-to-income ratio under 45% and the home being your primary residence. Here we take a closer look to get a better understanding of the FHA Title 1 loan and other home repair loan options that may be available to you.

What are FHA Title 1 loans?

FHA Title 1 loans are loans backed by the federal government but issued by private lenders. These loans are designed to help low- to moderate-income homeowners finance necessary home improvements when they are unable to qualify for traditional home equity loans. These loans can be used for any modifications that help to make the home more livable and can include the purchase of new appliances. The maximum loan term is 20 years for single-family homes and 12 to 15 years for manufactured homes. The maximum loan amount is $25,000 for single-family homes and a maximum of $60,000 for multifamily properties.

How do FHA Title 1 home improvement loans work?

How a Title 1 Home loan works depends on the amount of the loan. For example, for minor renovation projects costing less than $7,500, your loan is typically unsecured, meaning should you default, you are not at risk of foreclosure. However, for single-family home loans over $7,500 and below the maximum of $25,000, the loan is secured by your home. Funds from these loans can only be used for repairs and additions that improve the living conditions of the home and cannot be used for luxury items, such as adding a new pool. Eligible improvements can include new appliances, disability accessibility improvements, energy-conserving improvements, and other improvements that substantially protect or improve the basic livability or utility of the property.

How do I qualify for an FHA home improvement loan?

Before you consider applying for an FHA Title 1 loan, you need to make sure that you meet the basic loan requirements. Some of these requirements include:

1. Primary residence that you have resided in for at least 90 days before applying for the loan.
2. While there is no minimum credit score required for this loan, you will undergo a credit check and must provide verifiable income.
3. Debt-to-Income Ratio below 45%.
4. Cannot be delinquent or in default of another federally guaranteed loan.

Pros and cons of FHA Title 1 loans

As with all loan options, there are pros and cons that you should consider before applying. While an FHA Title 1 loan is backed by the federal government, they are provided by individual lenders, so you may find different rates from different lenders, so it is important to shop around before accepting a loan. Here we highlight some of the main pros and cons associated with FHA Title 1 home improvement loans.

Pros

• Minimum qualification requirements
• No home equity is necessary
• Unsecured loans available
• Low, fixed interest rates

Cons

• Insurance premiums are required at a 1% annual insurance premium on the amount borrowed.
• Repairs are limited based on the loan spending limits
• You must use an FHA-approved lender

Other Options for Home Improvement Loans

While an FHA Title 1 loan is a great option for many borrowers, it will not meet the needs of everyone. What is you your renovations exceed the $25,000 limit? What if you are looking to purchase a new home that requires additional renovations, and you want to finance both? If either of these scenarios sounds familiar, you may need to consider other home renovation loan options. These can include:

• Fannie Mae HomeStyle® Loan
• Freddie Mac CHOICERenovation or CHOICEReno eXPress Loans
• FHA 203(k)
• Home Equity Loan
• Home Equity Line of Credit (HELOC)
• USDA Rural Development Home Repair Loan

To learn more about these home improvement loan options, read “How to Get a Home Loan That Includes Renovation Costs?”

Navigating Home Improvement Loans

The idea of home renovations, finding qualified contractors, and figuring out how to live in your home while renovations are underway can be stressful enough. Trying to navigate the home improvement loan process, however, doesn’t need to be that stressful.

At Hero Home Programs, our goal is to help people achieve homeownership in their dream home, and this includes helping people navigate the home improvement loan process. To learn how our team can help you find the home improvement loan that will meet your needs, contact us today.

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How to Get a Home Loan That Includes Renovation Costs?

Whether you have an existing home that needs a new kitchen, or you have an eye on a new home with a low asking price but a lot of necessary home renovations before it is really livable, a home renovation loan can allow you to make the necessary home improvements without the cash upfront. These home improvement loans are available for those looking to make renovations that will increase the value of the property and you don’t need perfect credit to qualify for many of the available options. But when is a home renovation loan the right choice? Which loan option provides you with the best home improvement opportunities? How do you qualify for a home renovation loan?

What is a home renovation loan?

A home renovation loan is a loan that incorporates additional funds for the purpose of home remodeling or home repairs. In many cases, a home renovation loan is a mortgage that covers the home price as well as the additional funds. However, this can also include a mortgage refinance with a cash payout for remodeling, a home equity line of credit, a government-backed loan, or an unsecured personal loan.

Why should you consider a home renovation mortgage?

When deciding on a home renovation loan, you must begin by considering the benefits and the risks. Will your home renovations increase your property value or reduce your long-term costs? For example, roof repairs, new siding, and updated windows can help improve your home’s overall appearance but also provide weatherproofing and make your home more energy-efficient. However, you must determine if the cost of the home renovations and of the loan will fit your budget and that the renovations to your home will not make your home overly expensive compared to similar homes in your housing market, leaving you with damaged marketability should you decide to sell.

How do home renovation loans work?

When it comes to this type of loan, there are multiple options available. Each of these options has specific qualifications, as well as pros and cons. Before applying for a renovation loan, it is important to understand the differences and determine which loan option will work best for you.

1. Fannie Mae HomeStyle® Loan

The Fannie Mae HomeStyle loan enables buyers to finance the purchase of a home as well as the renovations planned and have the full loan amount combined into one mortgage. For those that already own the home, this loan option allows for refinancing that combines the original mortgage with the renovation costs. The money for renovations goes into a separate escrow account that directly pays the renovation contractors, so the borrower does not have direct access to the funds.

How to qualify
Qualifying for a Fannie Mae HomeStyle loan is similar to qualifying for any Fannie Mae home loan. While there are no income limits, there are caps on how much you can borrow that match the loan limits for conforming loans that follow the Fannie Mac guidelines. A borrower will need a minimum credit score of 620 and a debt-to-income ratio of less than 50%. You must have a down payment of at least 5% (though some first-time buyers can qualify at 3%). This percentage is determined by the home loan price plus the amount of renovation. For example, if your home is $150,000 and you are borrowing an additional $100,000 for renovations, your down payment would be 5% of $250,000.

Pros

• One monthly mortgage payment that covers both the home principal and renovation costs, with only one set of closing costs.
• May offer lower interest rates than conventional improvement loans.
• Available for many different property types.

Cons

• Renovations are limited to 75% of the post-renovation value of the home.
• Acquiring funds can take longer than a conventional mortgage loan.
• Can have higher fees and closing costs than other loan options.

2. Freddie Mac CHOICERenovation Loan

Similar to the Fannie Mae HomeStyle loan, the Freddie Mac CHOICERenovation loan allows you to finance both the purchase price of the home and the renovation costs, giving you one mortgage payment. This loan is also available to refinance an existing property with an additional amount for renovations. Renovations must be completed within a year of loan closing and are available for a variety of different property types. For those with smaller home renovations, Freddie Mac also offers the CHOICEReno eXPress loan option that applies for renovations under 15% of the home value.

How to qualify
While the Freddie Mac CHOICERenovation loan does not have any specific credit score of debt-to-income ratio requirements, borrowers must meet the same requirements necessary for any other Freddie Mac conventional loan, including a credit score of at least 620 and a DTI of 36% or less.

Pros

• Able to combine the purchase price and renovation into one mortgage payment.
• Available for single-family homes, primary residences, second homes, and investment properties.
• Low down payment options
• Mortgage amount based on after-renovation property value
• Permits the use of sweat equity

Cons

• Renovations must be completed within the first year.
• Bank-owned properties can require additional approvals that can extend the approval processing time
• Renovation costs are capped
• May require higher closing costs and fees
• Can have a higher mortgage rate

3. FHA 203(k)

The FHA 203(k) loan is another loan option that allows you to purchase a home and include the renovations in one mortgage. This loan option includes two different types: Limited and Standard. Limited 203(k) loans are capped at $35,000 for renovations while the Standard option is for more major renovations. With more lenient qualifications, this loan option often appeals to borrowers with less than perfect credit.

How to qualify
To qualify for an FHA 203(k) loan, borrowers must have a minimum credit score of 500 and a maximum debt-to-income ratio below 45%. Down payments can be as low as 3.5% for lenders with a credit score over 580 and 10% for those below 580. The home you are purchasing and renovating must be your primary residence and meet FHA property eligibility requirements. Your loan cannot exceed FHA loan limits for your area.

Pros

• Lower qualification requirements making this loan appealing to those with less than perfect credit.
• One mortgage payment for both home loan and renovation.
• Low down payment.

Cons

• Loan requires a mortgage insurance premium (MIP)
• Can only be used to purchase a primary residence.
• No renovations can be performed by yourself.
• Involves more paperwork than many of the other loan options.

4. Home Equity Loan / HELOC

A home equity loan is a lump-sum loan at a fixed rate that provides up-front cash for home renovations at a fixed rate. A home equity line of credit (HELOC) is similar however, instead of up-front cash, this loan option provides a credit limit with a revolving balance and a draw period of five to 10 years.

How to qualify
To qualify for a home equity or HELOC, borrowers generally need at least 20% equity in their home, a credit score of over 600, and a stable, verifiable income history of over two years.

Pros

• Home equity loans offer a fixed interest rate and payment amounts that do not fluctuate.
• HELOC allows you to draw money as you need and only pay interest when you draw a payment.
• Loans can be used for a variety of different renovations, including DIY renovations.

Cons
HELOCs have variable interest rates, meaning your rates and payments can increase over time.

5. USDA Rural Development Home Repair Loans

Offered through the USDA’s Rural Development program, borrowers can apply for a USDA Rural Development Home Repair Loan to homeowners in rural locations looking to improve their current property.

How to qualify
In order to qualify for these loans, the loan must be for a primary residence, have an income that exceeds 50% of the median income in the county, and live in an eligible rural area.

Pros

• No down payment is required
• Low-interest rates, credit score requirements, and origination fees.

Cons

• Geographical requirements for properties
• Income limits
• Must be a primary residence

Covering renovation costs with your home loan

Whether you are looking to purchase a new home that needs some renovations, or you love your current home but would really love a more modern kitchen or bathroom, home renovation loans can help you achieve your dream home.

At Hero Home Programs, we understand how important home ownership is and how having the perfect home makes all the difference. If you are considering a new home purchase with renovations or simply looking to improve your current home, our team can help you navigate the renovation loan process. To learn more, contact us today.

How to Get a Home Loan That Includes Renovation Costs? was first published on www.herohomeprograms.com

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Guide to FHA Loan Limits for 2022

Across the United States, home prices are surging. In order to keep pace with home inflation, the Federal Housing Administration is increasing the FHA loan limits for 2022. These new FHA 2022 loan limits will give borrowers access to a wider range of homes and achieve the goal of homeownership.

What are the new FHA loan limits and what are FHA loan requirements? Here at Hero Home Programs, we offer an in-depth look at FHA loans, the new limits, and how you can qualify for an FHA loan.

What is an FHA loan?

An FHA loan is a home mortgage loan insured by the Federal Housing Administration. While the FHA insures these loans, they are underwritten and administered by third-party mortgage lenders and are often the loan choice for many first-time homebuyers as they have lower requirements than many conventional loans.

How do FHA loan limits work?

FHA loan limits are the maximum amount that the FHA will insure for the purchase of a property. The idea behind FHA loans is that the FHA guarantees the lender that the balance of the loan is covered if the borrower defaults. This government guarantee makes banks more willing to make mortgage loans to those that may not otherwise qualify for a conventional loan. FHA loans often accept lower credit scores and down payments to qualify, making them ideal for low- to moderate-income and first-time homebuyers. For this reason, the FHA sets a limit on the amount they are willing to insure, thus creating the FHA loan limits. This amount limits the amount of home price you can choose from.

What is the most you can borrow with an FHA loan?

The FHA establishes the loan limits every year based on the median home prices throughout the country. However, there are some considerations regarding the actual FHA loan limit in the area you are looking for a home and the type of property you are looking to buy.

1. Single-Family (One-Unit)

In 2022, the baseline limit for an FHA loan for a single-family home was set at $420,680. However, as we mentioned above, this amount can actually go much higher, depending on the location you are looking to purchase in. For example, in some high-cost areas, where the median home price is much higher, such as in California, the FHA limit increases to $970,800. In areas of Alaska, Guam, Hawaii, or the U.S. Virgin Islands, these limits can go as high as $1,456,200.

2. Multifamily

Suppose you are looking to purchase a multifamily property. In that case, the FHA loan limit again depends on locations but also depends on the number of units in the property you are considering. For example, a 2-unit property limit begins at $538,650 but can go up to $1,243,050 for properties in high-cost areas. These limits increase with the number of units, with a 4-unit property ranging between $809,150 to $1,867,275.

How FHA loan limits are set

The U.S. Department of Housing and Urban Development (HUD) looks at conforming loan limits throughout the country and uses these figures to determine FHA loan limits for every area. The lowest limit, known as the “floor,” is 65% of the national conforming loan limit. In 2022, this amount is $420,800. The highest limit, known as the “ceiling,” increases by 150% and only applies to areas where the median home prices are much higher.

FHA loan requirements

To qualify for an FHA loan, there are requirements that you much meet as a borrower. These include:

• Credit Score: Borrowers must have a minimum credit score of 500 with a 10% down payment. Borrowers with a 580+ credit score may qualify with a down payment of as little as 3.5%.
• Residence: The property you are purchasing must be your primary residence.
• Property Standards: To back an FHA loan, the FHA requires that a property meet its building standards.
• Debt-to-Income Ratio (DTI): Your DTI cannot be above 43% and your mortgage payment cannot account for more than 31% of your total monthly income.

To learn more about FHA loan eligibility, read “Am I Eligible for FHA Loan?”

Qualifying for an FHA Loan in 2022

2022 is the year to make your dream of homeownership come true and the increased FHA loan limits mean you may have a wider range of home options available to you. As a first-time homebuyer, the team at Hero Home Programs understands how overwhelming the home buying process can be and we are here to answer any questions you may have and help you achieve your homeownership goals. To learn more about how our team can help, contact us today.

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