Repair Escrows for Kentucky USDA, FHA, VA, Fannie Mae Home loans

 

Most Kentucky mortgage lenders prefer that each property be 100% complete at the time of closing; however, there are situations that warrant exceptions for escrow holdbacks, such as weather-related circumstances, lack of materials available for finishing, foreclosure sales and short-sales where the seller cannot or will not allow property repairs to be completed prior to closing, among others.

Escrow holdbacks are used to facilitate loan closings for properties that are ready for occupancy but that require minimal completion or repair per the appraisal. The buyer or seller is required to establish a cash escrow that will ensure the completion of the required repairs. The cash escrow will be 1.5 times the cost of the estimated repairs (non-HUD REO properties). The proceeds of the cash escrow are held in an escrow account  until the incomplete items or repair requirements are completed.

Upon completion of the repairs, a final inspection by the appraiser will be required to release funds. Therefore, a Change of Circumstance form to add the inspection fee must be submitted within within 3 days of notification of repair requirements.

Maximum Repair Escrow Amounts for Kentucky Mortgages: 

Kentucky Fannie Mae Loans:
The cost of completing improvements must not represent more than 10% of the “as completed” appraised value of the property.

Kentukcy FHA Loans:
There is no maximum amount to be held in escrow for the cost of repairs required by appraiser.

Kentucky FHA Loans: (HUD REO):
The maximum limit of cost of repairs for escrow holdback is $10,000, plus $1,000 contingency included in the loan amount.

Kentukcy VA Loans:
There is no maximum amount to be held in escrow for the cost of repairs required by appraiser.

Kentucky USDA Loans:
The maximum amount to be held in escrow for repairs required by appraiser cannot exceed $5,000.

Conventional & FHA Repair Escrow Options are available!

CONVENTIONAL Buyer funded Max. 10% “As Completed Value”  Any safety, soundness or structural repairs are ineligible 90 days to complete the work$200 Re-inspection fee FHA Buyer funded; max. $5,000 HUD REO must be financed in the loan, max. $10,000 Any safety, soundness or structural repairs are ineligible Max. $5,000 with $5,500 total escrow hold back with contingency reserve 90 days to complete work $200 Re-inspection fee

Kentucky Mortgage Terms to Know

Glossary of Mortgage Terms to Know For A Kentucky Mortgage Loan.

ACCRUED INTEREST: Accumulated interest since the principal investment that has
not yet been paid.
AMORTIZATION: Paying off debt, principal and interest, with a fixed repayment schedule
in regular installments over a fixed period of time.
ANNUAL PERCENTAGE RATE (APR): The annual rate charged for borrowing money
expressed as a percentage. APR takes into account interest, discount points, lender fees
and mortgage insurance.
APPLICATION FEE: A fee charged by a lender to cover the initial costs of processing a
loan application.
APPRAISAL: A written estimate of a property’s current market value, based on the current
condition of the property and recent sales information from similar properties in the same
area.
APPRAISAL FEE: The cost to have a licensed, certified appraiser estimate the market value
of a property as of a specific date.
BORROWER: An individual who receives a loan from a lender with the intention of repaying
the loan in full over the agreed upon time-frame.
CAP: A limit on the amount the interest rate can increase or decrease for an ARM, either in
an adjustment period or over the life of the loan.
CERTIFICATE OF ELIGIBILITY: A document given to qualified veterans entitling them to a
VA loan. Obtained by sending DD-214 (Separation Paper) to the local VA office with VA
form 1880 (request for Certificate of Eligibility).
CERTIFICATE OF REASONABLE VALUE (CRV): An appraisal issued by the VA.
CLOSING: Also called “settlement,” is when all parties in a mortgage loan transaction sign
the necessary documents to legally transfer property and funds.
CLOSING COSTS: Expenses incurred during the home purchase or refinance process that
are paid at closing, including the loan origination fee, discount points, attorney’s fees, title
insurance, appraisals, etc.
CLOSING DISCLOSURE (CD): A five-page document listing final details about the mortgage
such as loan terms, projected monthly payments and total closing costs.
COMMITMENT LETTER: A legal document issued to a loan applicant from the lender to
provide them with a mortgage under certain terms and conditions.
COMPARABLES: An abbreviation for “comparable properties;” recently sold properties
with similar characteristics and location to the subject property that help the appraiser
determine the fair market value of the subject property.
CONVENTIONAL LOAN: A loan not secured by the U.S. government, such as FHA,
VA, or USDA.
DEBT-TO-INCOME RATIO (DTI): A percentage of an individual’s debt, measured by dividing
total monthly recurring debt payments by gross monthly income.
DEED: A written legal document showing who owns a particular property. This must be
signed to transfer a property’s ownership rights to a new homeowner.
DEPARTMENT OF VETERANS AFFAIRS (VA): A government agency that manages
benefits and other services for eligible veterans of the military.
DOWN PAYMENT: The upfront money paid to purchase a home. It is deducted from the
total amount of a mortgage and represents the beginning equity.

EARNEST MONEY: A security deposit made by a buyer to a seller to demonstrate that
the buyer is serious and willing to purchase the property.
EQUAL CREDIT OPPORTUNITY ACT (ECOA): Federal law enacted in 1974 making it
unlawful for any creditor to discriminate based on race, color, religion, national origin,
age, sex, marital status or receipt of income from public assistance programs.
EQUITY: The portion of a property that homeowner owns. Equity is the difference between
the home’s fair market value and the outstanding balance of the mortgage on the property.
ESCROW: A third party that holds money to ensure pay property taxes, homeowner’s
insurance or mortgage insurance is paid on time.
HAZARD INSURANCE (HOMEOWNER’S INSURANCE): Protects a homeowner against
loss due to fire or other natural disasters in exchange for a premium paid to the insurer.
HOMEOWNERS ASSOCIATION (HOA): An organized group of owners, usually found in
condominiums or closed communities, who manage the common areas and enforce rules.
INTEREST RATE: The amount charged to borrow money from a lender, expressed as a
percentage of the principal loan.
LOAN ESTIMATE (LE): A three-page document that explains the important details
about a borrower’s loan, including the estimated interest rate, monthly payment and
total closing costs for the loan. The LE will be provided within three business days of
the lender receiving the loan application.
LOAN-TO-VALUE RATIO (LTV): The percentage of the loan amount to the appraised
value of the property.
LOCK-IN RATE: An offer by a lender to guarantee an interest rate for a set period of time.
MARKET VALUE: Also called “home value;” the amount for which a house will likely sell.
MORTGAGE INSURANCE (MI): Insurance that protects the lender if a borrower defaults
on their mortgage loan. MI is usually required if the down payment is less than 20% of
the purchase price.
ORIGINATION FEE: A fee charged by a lender to cover the administrative costs of
processing a loan.
PREPAYMENT: An advanced principal payment prior to the due date, thus saving money
on interest.
PREPAYMENT PENALTY: A fee charged to borrowers for paying ahead on their mortgage.
PRINCIPAL: Outstanding loan balance still owed to the lender, not including interest.
REALTOR: A licensed real estate professional who represents a buyer or seller in a real estate
transaction in exchange for a commission; a member of the National Association of Realtors.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): A federal law requiring lenders
to provide disclosures to borrowers informing them of loan settlement costs. These guidelines
provide acceptable practices and fees in real estate transactions.
SECOND MORTGAGE: An additional mortgage, or lien, placed on a property with subordinate
rights to the first mortgage.
TERM: The period of time that covers the life of the loan, usually in years.
TITLE: A document that indicates ownership of a property, as well as rights of ownership
and possession of the property.
TITLE INSURANCE: Insurance that protects the lender (lender’s policy) or the buyer
(owner’s policy) against loss due to disputes over property ownership.

6 options for buying a home with little or no money down

 

 

You’ve got great credit, a stable job, low debt, and money in the bank — but just not enough to make a down payment. Fortunately, there are many programs out there designed to give you that dream home with little to no money down.

Source: 6 options for buying a home with little or no money down

 

 

Kentucky FHA Loans Compared to Kentucky Conventional Loans

When it comes to financing a home a buyer is faced with the decision of what type of loan they want. The two most common choices are FHA or Conventional. Both have their advantages and disadvantages. Follow the chart below to see which one is a fit for you!

For more information on homes available for FHA or Conventional

Which Loan is better for you?

Kentucky FHA Loans are good for borrowers who have the following:

• Credit scores less than 680.
• Less than 5% down payment and no reserves to use.
• Borrowers with past foreclosures between 3 and 7 years old.
• Borrowers with past short sales between 2 and 4 years old.
• Borrowers who need a gift for the down payment and/or closing costs, prepaid taxes and
insurance.
The FHA Mortgage Insurance premium is a premium that exists for the FHA Loan that is
paid up front and monthly by the homebuyer. This premium protects the lender should the
buyer default. They vary per state and per type of loan Kentucky home buyers qualify for. In Kentucky, upfront mortgage insurance premiums are 1.75%.
Below are the rates per type of loan:
• 15-Year Fixed with down payment more than 10%: .45%
• 15-Year Fixed with down payment less than 10%: .70%
• 30-Year Fixed with down payment more than 5%: .80%
• 30-Year Fixed with down payment less than 5%: .85%

Kentucky Conventional loans are usually reserved for the following:

• Credit scores greater than 680
• Greater than or equal to  5% down payment with reserves
• Borrowers with past foreclosures over 7 years old.
• Borrowers with past short sales between 5-7 years old.
• Borrowers who have a lot of money saved up and want to get rid of mortgage insurance within the first 5 years give or take. 20% equity position is needed for no mi

The biggest difference between conventional loans and FHA loans comes down to the mortgage insurance.  Mortgage insurance is more expensive for FHA loans, but the trade off is a lower fixed rate than conventional loans.

On Conventional loans there is no upfront mortgage insurance like FHA, and if you have a high credit score you can possibly get a lower monthly mi premium as compared to FHA where everybody gets the same mortgage insurance premium not matter your credit score or down payment. 

Lastly, FHA Mortgage insurance is for life of loan, whereas Conventional mortgage insurance or pmi it’s called, is discontinued once you reach the 80% threshold equity position of your home loan.

Again, I would not get too caught in FHA having mortgage insurance for life of loan, because most loans are only kept open a minimum of 5-7 years so a lot of times it may make sense to go with the lower rate and pay the mortgage insurance with FHA because most people don’t hold their mortgage for 30 years.

You can call or text me with your questions and we can compare the differences based on your credit score, down payment and income.

Equal Housing Lender.  NMLS#:57916 http://www.nmlsconsumeraccess.org/Rates, terms, and program information are subject to change without notice. Subject to certain approvals, terms and conditions. This is not a commitment to lend.

Not part of any government lending agency and only lending in the State of Kentucky.

Looking at FHA loans vs Conventional loans can arm you with a lot of valuable information as these are the 2 most popular mortgage loan products today. Before getting to the content let’s look at some abbreviations that will need to be defined.

• PMI stands for Private Mortgage Insurance
• MIP stands for Mortgage Insurance Premium
• Credit Scores are a numerical measure of your credit worthiness, the maximum score is 850
• Debt-to-Income Ratio measures your monthly income versus your monthly obligations. A good rule of thumb is to try to be below 45%

FHA Loans vs Conventional Loans

Conventional Mortgage Benefits

• 20% down payment preferred to avoid PMI
• No upfront PMI
• 3% Down Payment Conventional Loan Option is available
• PMI expires once principal balance is less than 78%
• Houses do not have to be owner-occupied (so they can be used at rentals)
• Can purchase any condominium and townhome (no FHA regulations)

Conventional Mortgage Disadvantages

• Significant upfront investment (20% down preferred)
• Credit score of 620 required
• No Down Payment Assistance
• Down Payment must be at least 5% unless you qualify for a 3% conventional mortgage
• Harder to Qualify for a Conventional Mortgage
• No government inspection so the home can be in any quality
• Only a portion of a down payment can be a gift
• Interest rates are higher than FHA loans

Most of the disadvantages of conventional mortgages stem around qualifications and resources needed upfront. If a borrower has significant resources most of these disadvantages are of little consequence.

Conventional loan rates today

FHA Loan Advantages

The major advantage to going with an FHA loan is that there are much more lax credit standards you have to meet to obtain financing. Usually, FHA mortgages require a lower down payment, can work with lower credit scores, less elapsed time is needed if you have some credit problems (charge-offs, foreclosures) and you can use a non-occupant co-borrower or co-signer (who is a relative) to help you qualify for the loan. That way you can use blended ratios. Blended ratios are debt-to-income ratios that equally blend or combine the primary borrower’s income and the non-occupant co-borrower’s income and monthly payments to help get approval for the loan. Except for HomeReady (formerly Fannie Mae HomePath) mortgages, conventional loans do not allow you to use a non-occupant co-borrower.

• Government-backed program. Ideal for first-time home buyers
• Easier to obtain, lower credit scores needed and lower minimum down payment
• Down Payment minimum is 3.5%
• All of down payment can be a gift
• Down Payment Assistance Available (in some circumstances)
• No reserves required
• Minimum credit score is 500 (for 3.5% down payment)
• edition to be approved for FHA so there are less potential upfront repairs needed
• Lower interest rates than conventional mortgages

FHA Loan Disadvantages

• FHA loans require the owners to live in the home
• Mortgage Insurance Premium required if borrowers put down less than 10%
• Private Mortgage Insurance monthly cost is higher for FHA loans
• Government Licensed Inspector required to inspect home before sale can be approved
• Condominiums require FHA approval
• FHA Loans take longer to process because of government requirements and all mandated repairs have to be completed before sales can be finalized

Most of these disadvantages involve extra requirements or limits added to the process of the house (see Pros and Cons of FHA Loans). Some of these might not be disadvantages depending on one’s personal situation, but they are extra steps to note. Since FHA mortgages are a government program, more care and consideration goes into the process, which may be better in some situations.

 FHA loans vs Conventional loans

There are four important numbers in deciding which loan you will go with: credit scores, down payment amount, debt-to-income, and mortgage insurance percentage rate. Conventional mortgages and FHA home loans have different limits and rates which are important to examine. They also have important differences which affect the availability of properties, the condition of the properties one wishes to buy and how your down payment can be paid. So comparing FHA loans vs Conventional loans can sometimes be a tricky endeavor.

Down Payment Requirements

• Conventional Mortgages require between 5 and 20% upfront
  • In certain circumstances, down payments can be as low as 3% (Conventional 97 loan program)
• FHA Mortgages have 2 possibilities
  • If Credit Score is 500-579 then 10% down payment is required (not all lenders will even go down this low)
  • If Credit Score is 580+ then 3.5% down payment is required

Debt-to-Income Ratio

• Conventional Mortgages’ maximum debt-to-income ratio is 43% (hard cap)
• FHA Mortgages’ maximum debt-to-income ratio is 45%
  • Soft cap as in certain circumstances this can be adjusted up to 50%

Mortgage Insurance Premium Rates

• FHA Mortgages
  • If Down Payment is 10% or more the percentage is .80% MIP
  • If Down Payment is less than 10% the rate is .85% MIP.

Credit Score Minimum Requirement

• Conventional Mortgage minimum credit score
  • Most lenders will require between 620 and 640
  • Some lenders it will be as high as 700
• FHA Mortgage minimum credit score
  • Credit Score is a minimum of 500 if putting 10% down
  • Credit Score is a minimum of 580 if not

These four numbers are important to know and will affect one’s decision to pursue a particular type of home loan. Knowing your combination of numbers as you are looking to buy a house will help buyers find the best loans for their particular situation.

Other Comparisons

• All sellers will take conventional mortgages and some sellers will not take FHA Loans
  • People looking for short-sells won’t take FHA because FHA has a longer closing process.
  • If sellers know there are FHA repairs that are needed in order to sell their house, they will not always accept FHA financing.

Thus, if one is wanting a low-risk transaction then the FHA home loan route is a better option to pursue, even though it limits your options for homes that you might wish to buy. If one is looking to fix-up a house and raise its equity quickly then a conventional loan is going to be more beneficial because there are no requirements as to the condition of the house and it’s occupied status.

Down Payment Gifting

• Making the Down Payments (Assistance and Gifts)
  • Conventional mortgages have no assistance but can be partially fulfilled with a gift
  • FHA Mortgages have loans and assistance programs available and the whole down payment can be fulfilled with a gift

In this article, we have given you the basic parameters of FHA loans vs Conventional loans. The conventional loans are for people who have a better financial track record and can handle a larger upfront cost. Because of PMI, conventional loans are cheaper in the long run if you can put enough of a down payment to get rid of PMI. However, there are no down payment assistance programs to help you reach that goal. FHA loans are for people who are looking to build their investment and in some cases may not have a great financial track record. FHA loans have lower down payment requirements and many grants/forgivable loans to help people wanting to buy a first house in which to live for at least a few years. It is important to assess your situation and decide which mortgage is going to work better for your circumstances.

Conclusion

Both mortgages have a lot of benefits and drawbacks because they are designed for people with different needs. This article has hopefully helped you to get a basic understanding of the different terms and conditions of different mortgage packages when looking at FHA loans vs Conventional loans. Home buying can be an emotional roller coaster and the knowledge in this article will help you navigate the various emotional struggles of home buying.

HomePath listings in Jefferson County, Louisville Kentucky!

Check out the HomePath listings in Jefferson County and Louisville, Kentucky! Let your clients know these properties are available. Some have special incentives! Select the property address to find out more information.

635 S 44TH ST LOUISVILLE, KY 40211 3.0 br, 1.0 ba | 1574 sq. ft. MLS ID: 1457633   $31,000 Just Listed 615 S 18TH ST LOUISVILLE, KY 40203 3.0 br, 2.0 ba | 1248 sq. ft. MLS ID: 1457948   $29,500 Just Listed 541 WARNOCK ST LOUISVILLE, KY 40217 2.0 br, 1.0 ba | 876 sq. ft. MLS ID: 1458468   $63,000 Just Listed See All Matching Search Results 271 STONE RIDGE DR FISHERVILLE, KY 40023 4.0 br, 3.0 ba | 2512 sq. ft. MLS ID: 1451250   $239,900 Price Reduced 5919 COUNT TURF DR LOUISVILLE, KY 40272 3.0 br, 1.0 ba | 925 sq. ft. MLS ID: 1456218   $65,000 Price Reduced 8008 GRENELLE DR LOUISVILLE, KY 40228 3.0 br, 1.0 ba | 1025 sq. ft. MLS ID: 1457159   $114,995 Active 3750 BANK ST LOUISVILLE, KY 40212 2.0 br, 1.0 ba | 1400 sq. ft. MLS ID: 1457351   $59,500 Active 3501 ILLINOIS AVE APT A9 LOUISVILLE, KY 40213 1.0 br, 1.0 ba | 604 sq. ft. MLS ID: 1456768   $54,000 Active

http://www.mylouisvillekentuckymortgage.com/

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

American Mortgage Solutions, Inc.

10602 Timberwood Circle, Suite 3

Louisville, KY 40223

text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com

 

$44,900Just Listed 4125 La Salle Ave Louisville, KY 40215 2 Beds |1 Baths | 713 sq. ft. View Property

 

$259,900Just Listed 305 Merriman Rd Louisville, KY 40207 3 Beds |1 Baths | 1419 sq. ft. View Property

 

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$59,900Price Reduced 522 W Whitney Ave Louisville, KY 40215 2 Beds |1 Baths | 1320 sq. ft. View Property

 

$199,900Price Reduced 114 Rabbit Run Rd Georgetown, KY 40324 3 Beds |3 Baths | 2327 sq. ft. View Property

 

$14,900Price Reduced 120 Estes Rd Clay City, KY 40312 1 Beds | Baths View Property

 

$17,500Price Reduced 3801 Herd Elias Rd Tyner, KY 40486 3 Beds |2 Baths | 1680 sq. ft. View Property

 

$29,900Price Reduced 452 Frank Vanhoose Br Stambaugh, KY 41257 3 Beds |1 Baths | 1072 sq. ft. View Property