Beware of Fraud
Most dealers and contractors conscientiously try to give their customers service equivalent to the full value of their money. Unfortunately, home improvement rackets do exist. Here are a few common sense rules to follow:
- Read and understand every word of any contract or other paper before you sign it.
- Never sign a contract with anyone who makes fantastic promises. Reputable dealers are not running give-away businesses.
- Avoid wild bargains. The best bargain is a good job.
- Never consolidate existing loans through a home improvement contractor.
- Do not let salespeople high-pressure you into signing up to buy their materials or services.
- Be wary of salespeople who try to scare you into signing for repairs that they say are urgent. Seek the advice of an expert as to how urgent such repairs are. High-pressure and scare tactics are often the mark of a phony deal.
- Avoid salespeople who offer you trial purchases or some form of bonus, such as cash, for allowing them to use your house as a model for any purpose. Such offers are well-known gimmicks of swindlers.
- Never sign a completion certificate until all the work called for in the contract has been completed to your satisfaction. Be careful not to sign a completion certificate along with a sales order.
- Proceed cautiously when the lender or contractor demands a lien on your property. Most lenders do not require a lien if the loan amount is less than $7,500.
Financing Improvements
As a rule, the thriftiest way to finance improvements is to pay cash. But if you lack the funds even for immediate repairs such as replacing a worn-out roof or a broken-down furnace, you should weigh the cost of borrowing against the cost of delaying the work. If you have to borrow, you want to do it in the least expensive way. Use caution when using credit card borrowing because of interest rates.
If you want to borrow money for the improvements, you should go to your bank or other lender and apply for a loan. After checking to see if your credit is satisfactory, the lender defines the terms of the loan and you must agree to them before signing the note. Do not proceed with home improvement plans until you understand all of the costs involved.
Today there are a number of good plans for financing home improvements on reasonable terms. What kind of loan is best for you depends primarily on the amount of money you need to borrow.
The Title 1 Loan Program
If the equity in your home is limited, the answer may be an FHA Title 1 loan. Banks and other qualified lenders make these loans from their own funds, and FHA insures the lender against a possible loss. This loan insurance program is authorized by Title 1 of the National Housing Act.
FHA-insured Title 1 loans may be used for any improvements that will make your home basically more livable and useful. You can use them even for dishwashers, refrigerators, freezers, and ovens that are built into the house and not free-standing. You cannot use them for certain luxury-type items such as swimming pools or outdoor fireplaces, or to pay for work already done.
Title 1 loans can also be used to make improvements for accessibility to a disabled person such as remodeling kitchens and baths for wheelchair access, lowering kitchen cabinets, installing wider doors and exterior ramps, etc. another use is energy conserving improvements or solar energy systems.
Improvements can be handled on a do-it-yourself basis or through a contractor or dealer. Your loan can be used to pay for the contractor's materials and labor. If you do the work yourself, only the cost of materials may be financed.
Some of the advantages of the Title 1 loan insurance program are:
- You do not have to live in any particular area to get one of these loans.
- You seldom need any security for loans under $7,500 other than your signature on the note, and you need no cosigner. Also, there is no equity requirement if the loan is under $15,000 or the property is owner-occupied.
- You do not have to disturb any mortgage or deed of trust you may have on your home.
- To obtain a loan, you only need to own the property or have a long-term lease on it; fill out a loan application that shows you are a good credit risk; and execute a note agreeing to repay the loan.
- Your loan can cover architectural and engineering costs, building permit fees, title examination costs, appraisal fees, and inspection fees.
- You are not hampered by a lot of red tape. Usually only the lender has to approve your loan, and can give you an answer in a few days. When the work is finished, you will need to furnish the lender with a completion certificate.
- You receive some protection from the wrong kind of dealer, because FHA requires that any dealer who arranges a loan for you must first be approved by the lender.
Finding a Title 1 Lender
To find an FHA-approved lender in your area, call HUD's Customer Service Center on our toll-free number: 1-800-767-7468 (TTY: 1-800-877-8339) for a list of lenders in your State and additional copies of this brochure.
