FHA 203K Loans Kentucky

FHA 203k Loans Kentucky Mortgage Guidelines For Homebuyers

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This Article Is About FHA 203k Loans Kentucky Mortgage Guidelines For Homebuyers

FHA mortgages are the most popular loan program in Kentucky for first-time homebuyers, borrowers who are buying fixer-uppers to renovate, borrowers with credit scores down to 500 FICO, homebuyers with high debt to income ratios, and borrowers with outstanding collections and/or charged-off accounts due to the lenient FHA Loans Kentucky Mortgage Guidelines For Homebuyers.

Strong Kentucky Housing Market Due To Affordable Housing, Low Taxes, Great Economy, Low Cost Of Living

Kentucky has one of the hottest housing markets in the nation. More and more families are migrating to the state of Kentucky. Home prices in Kentucky have been increasing year after year since 2012. There is more demand for housing than the inventory of homes. Many Kentucky home buyers are turning into buyer fixer-uppers in Kentucky and customizing it. Many buyers purchase a tear-down in Kentucky and customize it by renovating to their likings with FHA 203k Loans Kentucky. The United States Department of Housing and Urban Development, commonly known by many as HUD, is the parent of the Federal Housing Administration, known by most as an FHA.

In this article, we will discuss and cover FHA 203k Loans Kentucky And Mortgage Guidelines.

FHA 203k Loans Kentucky Mortgage Guidelines And Requirements

Homebuyers buying fixer-uppers with an FHA 203k loan need to meet the minimum agency HUD mortgage guidelines on FHA loans. However, most lenders will have higher lending requirements on FHA 203k loans. This is because lenders consider 203k loans riskier loans versus traditional FHA loans. Here are the basic eligibility requirements on FHA loans:

  • 580 credit scores for a 3.5% down payment FHA loan
  • Borrowers with under 580 and down to a 500 FICO can qualify for an FHA loan with a 10% down payment
  • Manual underwriting is normally not allowed on 203k renovation loans
  • Debt to income ratio is normally reduced to 40% front end and 50% back end
  • 203k loans have higher mortgage rates than traditional FHA loans

Borrowers need to meet the general HUD guidelines on FHA loans. FHA 203k loans have higher lending requirements than traditional FHA loan requirements. Read the FHA mortgage loan requirements on FHA loans.

FHA 203k Loans Kentucky For Buying Fixer-Uppers

There is more demand for homes in Kentucky versus inventory of houses. Many homebuyers are turning into buying fixer-uppers and customizing it to their likings. Many homebuyers turn renovations into brand new custom homes. HUD developed a special acquisition and rehab loan program for homebuyers of fixer-uppers or foreclosures called FHA 203k Rehab Loans. The way FHA 203k Loans work is a private lender who is HUD-approved lend on an acquisition and construction loan. The borrower needs to put a 3.5% down payment on the after improved/after the appraised value of the home. Borrowers will need to meet the minimum HUD Guidelines. Besides meeting HUD Agency Guidelines, applicants need to meet whatever overlays by the lender. If the funded 203k Loan package meets all the mandatory HUD 203k Lending Guidelines, HUD will insure the lender if the borrower defaults on their loan. Interest rates on conventional loans are based on credit scores and loan to value. The lower the loan to value, the less the risk for the lender the lower the mortgage rates the borrower gets. However, with FHA Loans, only a 3.5% down payment is required. The reason mortgage rates on FHA Loans are low is because they are insured by HUD in the event the borrower defaults on their FHA Loans.

FHA Loans Kentucky Guidelines On Hiring Contractors For FHA 203k Renovation Loans

It is up to the homeowner to hire a general contractor. Homeowners need to be very careful in vetting general contractors. Experience and knowledgeable contractors are key. Borrowers who got FHA 203k Loans approved need to start their Loan Bidding Process by selecting Contractors. Contractors are experienced private general contractors who have met all of the requirements mandated by HUD such as having the proper documents. Need to meet mandatory licensing and insurance requirements.

Role Of HUD Consultants

A HUD Rehab Consultant will assist the FHA 203k Rehab Loan Borrower with their project:

  • The consultant will assist with the rehab management process with General Contractor
  • The U.S. Department of Housing and Urban Development, HUD, has a list of detailed standards that all 203k Contractors must abide by and meet
  • It is best to select Contractors who have had extensive experience with FHA 203k Rehab Loans
  • Choosing the right General Contractor is one of the most important decisions borrowers will need to make
  • This holds true since there is a streamlined system required by HUD with all FHA 203k Loan Processes
  • Contractors who have done many FHA 203k Loans and are familiar with all aspects of the 203k Loan Process is not just recommended by a must

Borrowers would not want Contractors who have limited experience doing FHA 203k Loans.

Does HUD Recommend 203k Contractors In Kentucky

Does HUD Recommend 203k Contractors In Kentucky

Many borrowers think that they cannot choose any Contractors. Borrowers can have the freedom to choose any HUD-approved Contractors they feel comfortable with and most reasonable. Contractors have nothing to do with FHA 203k Loans nor do they have any associations with any lenders. Contractors are private general contractors who meet HUD Guidelines. It is not the job of HUD to issue certification to certain Contractors for rehab projects on rehabs that are being financed with FHA 203k Loans. Borrowers need to select and hire their own 203k Contractors.

Qualification Requirements Of FHA 203k Loans Kentucky General Contractors

All Contractors need to meet HUD 203k Lenders general contractor requirements with regards to:

  • proper licensing
  • educational requirements
  • bond requirements
  • insurance
  • experience requirements

Streamline Versus Standard FHA 203k Loans Kentucky

With a full or standard FHA 203k Loans Kentucky Programs:

  • All rehab projects need to be inspected prior to the general contractor receiving payment or also called a draw
  • The purpose of the inspection is to verify that all work that was performed was performed according to code
  • FHA 203k Loans Kentucky And Mortgage Guidelines Needs to meet HUD Standards
  • All work must be completed
  • Contractors are not overpaid for work not performed
  • Full or standard FHA 203k Loans Kentucky are rehab loans with no construction loan limit

There are no construction budget limits and structural changes and room additions can be done.

FHA Loans Kentucky Requirements On FHA 203k Renovation Loans Streamline Guidelines

With FHA 203k Streamline Rehab Loans, lenders require that a final site home inspection be performed before they release the final payment: This is also called the final draw, to General Contractor.

Contingency Reserves With FHA 203k Loans Kentucky

Contingency Reserves on FHA 203k Loans Kentucky is a separate reserve set aside on every Project:

  • This is to make sure that there is a certain amount allocated in the event there are unexpected costs that may arise with the rehab project
  • The contingency reserve amount set aside is normally between 10% to 20% of the construction budget
  • The purpose of the contingency reserve account is to insure that if something does go wrong with the construction budget
  • It is to make sure there is enough money set aside to complete the rehab project
  • Reserves are to make sure the borrower does not have to worry about restructuring the loan in the event if the project is over budget
  • This does not happen often but does happen.

Leftover Construction Funds

There are times when the construction project costs less than the initial estimate of the project or due to a change of circumstances on the scope of work. In the event that there are funds left over after the rehab and there are funds left in the contingency reserves, then the excess unused construction funds will be applied to the principal of the loan. Borrowers cannot receive the leftover construction funds that have not been used.

Home Renovation

Most lenders want Contractors who are not related to the borrower in order for the general contractor to get paid for their services. There are cases where borrowers can be the general contractor. This is not allowed. Contractors acting as the general contractor needs to meet all of the education and licensing requirements by HUD, lender. Needs lender approval. If the lender does approve a general contractor, then the borrower cannot be compensated for their time and/or labor in his own project. Only materials and licensed sub-contractors with invoices and lien waivers for materials and labor can be compensated. Any leftover construction funds cannot be kicked back to the borrower in cash. Needs to go towards the reduction of the principal of the loan. Most Lenders recommend borrowers hire HUD-approved FHA 203k Contractors to do the renovation and not act as their own general contractors.

How Are FHA 203k Contractors Compensated

Contractors are compensated directly by lenders. Lenders will wire funds to an escrow account at a title company. General Contractor will go to the title company and turn in their draw request along with their lien waivers for both materials and labor. The title agent releases the funds to the general contractor. Prior to picking up the funds, pre-arrangements need to be made such as the draw request. The homeowner needs to authorize the payment in order for the contractor to be able to get paid on a draw. Choosing the right reputable general contractor is key in order to have a stress-free construction project.

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