Government-backed home improvement loans do not come from the Federal Housing Authority directly. It insures the loan to make borrowers less risky to lenders. Interested parties will need to apply for an FHA loan from a lender, like a bank.

The FHA must approve the lender underwriting the loan. The US Department of Housing and Urban Development (HUD) has a Lender List Search page to help borrowers find an approved provider. 

The FHA must also approve of the contractor completing the renovations. The contractor must have the repairs complete within six months of the borrower receiving the loan. 

Owners can apply for a loan or refinance their existing mortgage to get cash from the property’s equity. Refinancing is a cost-cutting option if the existing mortgage has a higher interest rate than those currently offered. Existing homeowners must have purchased their property at least a year before the refinancing loan. 

Individuals can apply for a loan that is up to the lesser of: 

• 110 percent of the home’s appraisal value. 
• The home price plus estimated renovation costs.

Borrowers typically receive better terms and lower interest rates with government-backed loans. However, standard FHA loans have a slightly lower rate than FHA 203k loans. 

It is usually easier to qualify for a government-back loan than a private loan. The better the borrowers’ credit score and history, the more likely they will receive approval and good terms. 

The FHA and FHA 203k loans are just two options. Owners can look up other HUD housing assistance programs and FHA loans like the following:

• The Property Improvement Loan Insurance (Title 1) backs rehabilitation loans. Borrowers can improve single-family homes for up to $25,000 or multi-family homes for up to $12,000 per unit for a structural maximum of $60,000. Borrowers do not need to live in any particular area.
• The Energy Efficient Mortgage Program that provides funds for a mortgage and select home improvements. Developments should lower utility bills.

Individuals in rural areas have more home renovation grants and loan options. Some homeowners can get grants up to $7,500 that they almost never have to pay back. 

Rural area grants and loans have different requirements than FHA loans, namely living in a rural area. But the loan from the Section 504 Home Repair Program has one of the lowest interest rates for homeowners. 

Learn more about the free money and big savings homeowners in rural areas can apply for next.