Types of Home Improvement Loans
by Anton Behr
Improving your home is an investment that boosts the value of your real estate and bolsters the overall quality of the community. Because of this, you can often get special loans from the government or favorable rates from the bank. There are several different types of home improvement loans. Learning about each one will help you choose which one is best for your project.
HUD 203(K) Rehabilation Program
The U.S. Department of Housing and Urban Development has a program that helps you finance home improvements. Geared toward "fixer upper" properties, the 203(k) loan factors in the cost of the purchase, as well as the cost of the planned renovations or improvements. To receive a 203(k) loan, you must indicate in the sales contract that you are seeking such a loan. You must also get a feasibility analysis of the property from a real estate agent.
FHA Title I Program
The Federal Housing Authority runs a Property Improvement Loan Insurance (Title I) program that insures lenders that give home improvement loans against losses. This means that you can typically get more favorable rates from your bank, since the program reduces their risk. Title I loans max out at $25,000 and are insured for 20 years. You must apply to a FHA-approved lender for your loan to be eligible. See the Resources section for a list of approved lenders.
HUD Loans for Native Americans
The Indian Home Loan Guarantee Program (Section 184) guarantees to those of American Indian or Alaska Native heritage flexible underwriting and a low down payment. This can be used to purchase a new home, as a rehabilitation loan or for new construction. Qualifying borrowers must first enroll in a homebuyer counseling class to participate in the program.
The United States Department of Agriculture's Rural Development Housing and Communities (RDHC) programs are designed to help improve rural residences. Families with income below 80 percent of the median income level in the communities in which they live are eligible to participate in the direct loan program at an affordable interest rate. The RDHC also guarantees loans of private lenders, similar to the FHA's Title I program.
State Level Loans
Many states offer home improvement loans for various purposes, such as energy conservation, community development and home rehabilitation. Check with your state or municipal housing authority to see if you qualify for any home improvement loans. Check to ensure that receiving a state-level home improvement loan does not exempt you from receiving federal level assistance or vice versa.