How to Finance Home Improvements Using HUD
As the government guarantees a massive number of home mortgages, equity loans, and home improvement loans, the Department of Housing and Urban Development can be a good source of information about home improvement projects and how to finance them. The information here is summarizing HUD.gov website sources.
Why protect a home through continual improvements?
The home is where Americans spend a huge amount of their time. Maintaining the home in top condition yields dividends in comfort and usefulness. Keeping the home maintained can also avoid costly repairs.
Another benefit of maintaining a home’s condition and appearance is in value appreciation over time. Well-kept homes tend to increase the quality and appearance of neighborhoods. This tends to result in overall neighborhood higher appreciation over time, resulting in a higher value when ready to sell.
The DIY Approach
Doing It Yourself home improvements are possible, but only if the homeowner has experience and the skills necessary for carpentry, electrical, and plumbing projects. Homeowners without the skills should use professionals. If taking the DIY approach, the other consideration is in materials purchases. There should not be excessive emphasis on cost-cutting on materials. The quality of materials is not always a cost issue either. Careful shopping can locate materials suitable for the job with long life expectation and good looks.
If Hiring Contractors
Hiring contracting professionals is the approach used by most homeowners, and it is a great way to improve a home with a quality job and value appreciation over time. There are some cautions when seeking out contractors or a general contractor for home improvements.
Generally, smaller projects or those involving only one trade, such as electrical work, require only the hire of a single professional. However, for room additions or major work with multiple trades involved, it is often best to hire a general contractor to hire and supervise the trades involved.
Competitive Bids: A licensed and experienced general contractor with references you check is a great way to get your major improvement project done on time and within budget. It is fine to get competitive bids, but you should be certain that the same job specifications and materials quality are being bid by all. It is easy to be low bidder if using lower quality materials.
Lien Releases: You should be sure that the contract for work specifies that payments on larger jobs are only made with lien releases from all subcontractors involved. The lien release should be presented at the time the check for payment changes hands.
Permits and Certificates of Occupancy: You do not want to get years down the road and trying to sell your home only to find out that your improvement was not permitted. Be sure that all appropriate permits are in place and that there is a Certificate of Occupancy at the end of the job.
The Title I Property Improvement Loan Program
Once you have the plan in place, and unless you have the cash to fund the improvement, it is time to arrange financing. Of course, you can use credit cards in some cases, but the interest is quite high. There are also commercial HELOC, Home Equity Line of Credit, products offered by banks, as well as straight home equity loans.
However, if none of those options are available or something else is preferred, the HUD Title I Property Improvement Loan is popular, especially for larger projects. You can get one of these loans at a local bank, as the FHA guarantees the loan with the lender. This lowers their risk profile and helps to qualify more people. Advantages of the Title I Loan include:
There are no area limitations for these loans; they are available everywhere.
For loans under $7,500, there are often no security requirements and no cosigners are necessary.
Your mortgage or deed of trust are not involved.
To obtain the loan, you need only:
Own the property or have a long-term lease.
Meet credit requirements of the lender.
Sign a note agreeing to repayment terms.
The loan can cover related expenses including:
Building permit fees
Title company costs
Engineering and architectural costs
Usually the lender can approve locally, and the money can be available in days.
The Title I Loan has a maximum of $25,000 for a single-family home and a term limit of 20 years. Manufactured homes classed as real property can also get a loan with a term limit of 15 years.
To find an FHA-approved lender in your area, call HUD’s Customer Service Center toll-free: (800) 767-7468 (TTY: (800) 877-8339) for a list of lenders in your state.