Most hardworking homeowners know all too well the struggle with costly home repairs and improvements. Whether it is a steady flow of little problems, a large unexpected repair or a real-life version of the Money Pit – keeping up can, for many, become insurmountable. What many folks don’t realize, however, is that there are legitimate government programs which enable homeowners to receive relatively simple, low-interest loans for property rehabilitation – and they’re not quite what most people think.
The Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) have developed a way to make it easier for homeowners to make necessary repairs and/or upgrades to both newly-acquired properties and homes that have been owned long-term. For those who are loathe to involve themselves with the federal government either because they are true bootstrappers – or because they foresee endless red tape – the first thing to know is that these are loans administered through private lenders. The FHA and HUD simply insure the loans and this helps to both make them easier to obtain and expedite the process. The second thing to remember is that this is not free money. These are loans to qualifying homeowners and repayment is required. What these programs offer is a higher probability of qualification, lower interest rates, and less red tape than mainstream loans through private lenders.
The two main federal programs are HUD’s Title I Home & Property Improvement Loan and FHA’s 203(k) Rehab Mortgage Insurance. HUD’s Title I was developed to be used for alterations, repairs and improvements for a single family house that has an existing mortgage. It is not to be used when buying a property but can be used in conjunction with the 203(k) if refinancing is involved. The maximum loan amounts range from $7500 to $25,000 and these amounts depend largely on how the property is classified. Maximum loan terms are anywhere between 12-20 years and there is no penalty for pre-payment. While the interest rate is fixed and based on common market rate in the area, it is often negotiable. One very appealing aspect of the Title I loan is that any amount under $7500.00 does not require a mortgage or deed-backed security. For do-it-yourselfers, this can be a wonderful way to get things done, because the loan amount can be used entirely for materials.
FHA’s 203(k) Rehab Mortgage Insurance can also be used for alterations to an existing home, but is most commonly utilized by buyers looking to finance both the purchase of a home and the cost of its rehab together in one single mortgage. This is an excellent program for folks looking to buy a “fixer-upper”, because it helps to avoid the costly and complicated process of many interim-acquisition improvement loans. These often come with high interest rates, short repayment terms and hefty balloon payments because the value of the property prior to renovations can be difficult to determine. The FHA also offers a 203(b) Streamlined loan for homes requiring less than $5000.00 of work. Because the 203(k) loans involve mortgages, the terms are more involved than the Title I loans, but this information – and and anything else you need to know about HUD and FHA loans can be easily found at portal.hud.gov.
It is understandable that many self-sufficient property owners will scoff at the notion of any type of public programs. But again, it is important to understand that these are really nothing more than insurance incentives intended to protect lenders – quite like the way the FDIC protects your bank accounts. Also, by keeping a home safe, attractive and functional, you work to benefit entire communities and society as a whole. Both of these programs can be used to make alterations needed for persons with disabilities and upgrades to keep a home as energy efficient as possible. And, perhaps most importantly, a well-maintained home keeps neighborhood property values up, excessive development down and can provide future generations with affordable homes that have character and historical significance.
Credit: Diana Cammarota
