FHA Home Improvement Loan Requirements Explained

The Federal Housing Administration offers home improvement loans to borrowers that meet certain criteria.

FHA home improvement loans provide funding in order to "protect or improve the basic livability of the property." These loans are designed for homeowners who may not otherwise qualify for traditional financing.

While FHA loans are available to many homeowners there is a large group of people that will not qualify. The good news is that there are affordable alternatives on the market today. One of the most promising examples is peer to peer lending. New peer to peer lending websites offer low interest loans and require no down payment on home improvement loans.

Borrowers should review the following criteria to determine if they qualify for FHA Loans.

Benefits of FHA Home Improvement Loans:

• Maximum $25,000 Loan
• Fixed Rate Loans
• 20 Year Term
• No Home Equity Required
• Must be used for Permanent Property Improvements
• No Prepayment Penalties

What are the FHA Home Improvement Loan Requirements?

Home improvement loans from the FHA have set lending requirements that must be met by all borrowers. One of the main areas lenders look at is a borrowers employment history and income. A borrower must have had two years of steady employment preferably at the same company. They must also prove that they have a stable or growing yearly income in order to qualify for FHA Home Loans.

Borrowers do not need to have perfect credit but they must demonstrate financial responsibility. For example, borrowers must wait two years after filing for bankruptcy to apply for a FHA loan. They must also wait three years since their last foreclosure before applying and they must have maintained perfect credit since.

Requirements for FHA Home Repair Loans:

• Two Years of Steady Employment
• Stable Income
• Credit Score of 620 or Higher
• Over Two Years Since Last Bankruptcy
• At Least Three Years Since Last Foreclosure
• Mortgage Payment Should Not Exceed 30% of Gross Income

What do FHA Home Improvement Loans Cover?

These Home Improvement Loans are designed to finance permanent property improvements. More specifically, any improvements must be made to improve the basic livability of the property. This includes structural upgrades, utility improvements or heating and cooling repairs.

Types of Repairs Covered by FHA Home Repair Loans

• Door and Window Repair
• Foundation Repair
• Furnace Repair or Replacement
• Roof Repair
• Sewer and Plumbing Repair

The items not covered by FHA Loans are anything that does not improve the utility of the home. These type of improvements may be considered decorative or superfluous. Painting walls, adding an additional bedroom or upgrading kitchen cabinets are not acceptable repairs.

FHA home improvement loans are to be used to make repairs that may not otherwise be affordable by the homeowners. Borrowers should closely review the terms and conditions of the loan to determine if their repairs will qualify for home improvement financing. Much like VA home improvement loans, FHA financing has many requirements that must be met.

Types of Repairs NOT Covered by FHA Loans

• Appliance Upgrades
• Bathroom Remodeling
• Bedroom Addition
• Kitchen Cabinets
• Paint

Alternative to FHA Home Improvement Loans

Homeowners that do not meet the above criteria for FHA home loans will want to consider an alternative financing option.

One of the most common types of financing for home repairs is peer to peer lending. This type of home improvement loan is guaranteed by individual investors rather than a bank. Borrowers experience the benefits of lower closing costs and attractive interest rates.

Homeowners need not worry about what type of home improvements can be used with peer to peer lending. The loan can be used for any home improvement projects. Best of all, unsecured personal loans can be eliminated in the event of bankruptcy.

Benefits of Peer to Peer Lending

• Low Interest Rates
• No Down Payment Required
• Easy Application Process
• Fast Approval Process
• No Restrictions on Use

FHA Home Improvement loans offer a unique opportunity to homeowners with limited financing options. Serious house repairs cannot be overlooked but are unfortunately very expensive. These government loans are a perfect way for families to make the necessary repairs to their house without breaking the bank.

Homeowners that do not meet the requirements for FHA Loans are encouraged to try P2P lending. They offer attractive loan terms at low interest rates. More importantly peer to peer lending sites offer more flexibility than FHA Home Improvement Loans.