Wednesday, February 2, 2011

FHA 203k Kentucky FHA Loan Guidelines

FHA 203k Kentucky FHA Loan Guidelines

Frequently asked Questions and Answers on FHA 203k Rehab loans for Kentucky

Home buyers. –

203k Streamline Webinar

1.Q: What is the difference between the streamline 203k and the regular 203k?

a: The streamline 203k has a cap of $35,000 including fees, with no minimum repair cost. It is designed as a “refurbish and rehab” loan for borrowers to finance non-structural and cosmetic repairs only. The full 203k may be used for structural repairs and room additions as well.

1.Q: Can the $35,000 cap on repairs be exceeded by soft costs?

a: No – the streamline 203k caps at $35,000 including all costs.

1.Q: Define soft costs?

a: Soft costs are the closing costs associated with the 203k loan – they include up to 2 inspection fees (approx $150/each), and appraisers compliance inspection report (approx $125) a supplemental origination fee (the greater of $350 or 1.5% of the rehab costs, and a contingency reserve of 10% – to be determined by the Underwriter).

1.Q: Can the borrower bring in cash for repairs that exceed the maximum $35,000 cap?

a: No – if the rehab amount exceeds $35,000 including costs, the loan is not eligible for the streamline 203k – the borrower may not bring in funds that exceed

1.Q: What are the down payment requirements on the streamline 203k?

a: Standard FHA – Maximum LTV is 96.5% for purchases and 97.75% for Rate & Term Refinances

1.Q: How do you calculate the loan amount on the streamline 203k for purchases and refinances?

a: Purchases- Use the lesser of the “As-Is” value provided by the appraiser, or the sales price of the property – add the cost of the rehab and soft costs – deduct any seller concessions that exceed 6% – compare this to the “As-Improved” value per the appraisal x 110%. The maximum loan amount will be based on the lesser of the 2 calculations. Apply the standard FHA LTV calculation of 96.5%.

a: Refinances – Use the lesser of the “As-Is” value provided by the appraiser, or the current Mortgage balance – add the cost of the rehab, soft costs and allowable borrower closing costs – compare this to the “As-Improved” value per the appraisal x 110% The maximum loan amount will be based on the lesser of the 2 calculations. Apply the standard FHA LTV calculation of 97.75%.

1.Q: Can the borrower receive any cash out on this program?

a: No – the streamline 203k loan is for Purchase and Rate & Term

refinances only.

1.Q: Can the borrower be reimbursed for any funds spent prior to closing the loan?

a: No –

1.Q: What types of properties qualify under this program?

a: SFR’s, condos, PUD’s and 2-4 units.

1.Q: Is this allowed for new construction properties?

a: No the property must be existing at least 1 year old to be eligible for the streamline 203k.

1.Q: Is there any additional Underwriting time required for this program?

a: Normal Underwriting turn times plus 72 hours additional for a 2nd level review of the 203k paperwork will be required.

1.Q: Can this loan be used with the FHA high balance loan?

a: Yes

1.Q: Can this program be used with Down payment assistance programs?

a: Yes – but the DAP must be prior approved by Plaza and their investor

1.Q: Can this loan be used for someone with a non occupying co borrower?

a: Yes – the credit piece of this loan is the same as an FHA 203b – standard FHA qualifying.

1.Q. Can this program be used for investors?

a: No – this is an owner occupied only program. Not allowed for investment properties or 2nd homes.

1.Q: Can an Energy Efficient Mortgage (EEM) be used in conjunction with the streamline 203k program?

a: Yes the EEM may be used in addition to the $35,000 streamline 203k, the borrowers may finance up to $8000 in approved EEM items (Energy Star appliances, dual pane windows, insulation, etc) on top of the $35,000 allowed for the streamline 203k – for a total of $43,000.

17. Q: Can this loan be used in conjunction with the HUD REO program?

a: Yes – but the use of the streamline 203k must be pre-approved by HUD to be used with their REO program.

18. Q: Is there special verbiage required on the purchase contract for the streamline 203k?

a: No the streamline 203k is not typically part of the purchase contract although it does require the property be available for the inspections to complete the bids for the work to be completed. It is necessary on a purchase that the seller be cooperative with access to the property.

19. Q: Are there any extra fees associated with the streamline 203k?

a: Only the soft costs – which will be approximately $800 – $1,000 plus the contingency reserve.

20. Q: How long does the borrower have to complete the work?

a: The work must begin within 30 days of the loan closing, and be completed no later than 6 months from loan closing.

21. Q:Does the borrower have to occupy during the entire time of the rehab?

a: The borrower can not be displaced from the property for more than 30 days during the allowable 6 month rehab time

22. Q. If the repairs do not allow the borrower to be in the property for 30 days – can the Mortgage payments for the month they are displaced be included in the loan amount:

a: No the streamline 203k does not allow the financing of Mortgage payments –

23. Q: How many draws are there on the streamline 203k and who provides them?

a: There are 2 draws. The first is distributed at 50% of the total rehab costs within 30 days of the loan closing – once the loan is purchased by the servicing lender. The servicing lender will disburse 50% up front, and the remaining 50% once all the work is completed – regardless of how many bids – each will be disbursed in 50% increments

24.Q: How do the borrowers get the draws?

a: The draw will be distributed in 2 parts – 50% of all the bids will be disbursed within 30 days of closing and the remaining 50% will be disbursed after all the work is completed if the borrower is using a contractor – the funds will be disbursed in a 2 party check made out to the borrower and the contractor jointly. The contractor will complete and sign a W9 form prior to docs. It is important for all parties involved to understand that regardless of when their portion of the work is completed – no contractors on the job will receive the 2nd half of the draw until after ALL work on the property is completed and a final inspection is obtained by the servicing lender

25. Q: Can the borrower do their own repairs on the streamline 203k?

a: Only if the borrower is qualified (works in the construction trades, is a licensed contractor, etc) and completes the self help forms .

26.Q: For self help borrowers- would bids be required?

a: Yes – for any materials or outside sub contractors that will be used. The loan amount can not be determined without written bids.

27 Q: Would a borrower that has a history of owning and managing rental units be eligible to do self help?

a: Not necessarily – to be eligible for self help the borrower must be able to document their ability to make the repairs – a do it yourself borrower or someone who spends a lot of time at Home Depot would not be eligible based on that alone.

28.Q What are the requirements for a contractor?

a: Contractors must be licensed and bonded. The contractor will be required to complete a W9 prior to closing..

29. Q: Is a consultant required on the streamline 203k?

a: No – a consultant is not needed because the extent of the work on the streamline 203k is meant to be minor rehab – not room additions

30.Q: Is there a contingency reserve required and what is it for?

a: A 10% contingency reserve will be required anytime there will be actual construction being done to the property, to cover any cost over-runs on the repairs.

31.Q: What happens to any leftover funds after the repairs are complete?

a: Any excess funds after the work is completed will be applied to the principal balance

32.Q: Can this program be used for Mold abatement or termite repairs or asbestos removal?

a: Yes – we have recently confirmed that the program will allow non structural mold abatement, termite repair work (including tenting) and the removal of asbestos provided it is done by a licensed expert.

33 Q: Is flooring allowed to be included in the program:

A: Finish flooring is allowed, however the repair of sub-floors is not because it is considered structural

34. Q: Can the borrower do plumbing and electrical work with this program?

a: Yes – the program can be used for any non-structural repairs – the borrower can upgrade a kitchen or bath, including all fixtures and plumbing, cabinetry, etc.

35. Q: Can the program be used to make improvements for handicapped persons?

a: Yes. Including lowering cabinet height, building ramps for accessibility or widening doorways.

36. Q: Can Well & Septic repairs be done, or can the borrower use this program to connect the property to public water and sewer if available per FHA guidelines.

a: Yes – the program may be used to repair or replace existing Wells and Septic Systems. And the program can be used to permanently connect to public water and sewer- if available –in compliance with FHA guidelines

37. Q: Can this program be used to purchase appliances?

a: Yes – New Appliances only. They may be free standing (such as stoves or refrigerators, washer & dryer) or built in.

38. Q: Can this program be used to repair or build a swimming pool?

a: No- Swimming Pools are considered luxury items, and the construction or repair may not be included in the Streamline 203k

39. Q: Can the program be used for decks, patios and driveways and sidewalks?

a. Decks and Patios are allowed with this program – however the building or rebuilding of a driveway or sidewalk is not.

40. Q: What are some additional items that can be included on the streamline 203k – that may not be on the list of eligible repairs?

a. In addition to the items mentioned above – the borrower may include items such as Water softeners, humidifiers, ceiling fans, air conditioning units – all permanently affixed.


The FHA 203k rehabilitation loan is a home loan that is BOTH a home loan (backed by HUD/FHA) and a loan that allows you to finance repairs or renovations into the loan. This can be accomplished in one loan program because the lender is managing both the loan and repairs at the same time.
I’ve written a detailed article for real estate agents and consumers on the 203k eligibility, loan process, and benefits/risks of this program. I am sure you will have questions, I am here to help if you need anything!


(1) When the home is being sold “as-is” typically from the bank as a REO or short sale property, and is required to sell without repairs; or, the home is aged and in poor shape . In both cases, the home must be purchased “as is” (due to the seller or market) and would not pass the appraisal inspection for a conventional or regular FHA or VA home loan, and a cash purchase or 203k loan is the only option.
(2) Most homebuyers simply do not have the additional money on top of their down payment to put the repairs or upgrades into the home. Or in 2017 terms – “To buy a fixer-upper.”.


As I mentioned earlier, the 203k loan is essentially a FHA loan. So, FHA qualifying guidelines (with a couple additional requirements) apply:
(1) Must be owner-occupied (cannot be used on a flip or investment home)
(2) Minimum 620 credit score (can make case-by-case exceptions down to 580)
(3) Minimum down payment of 3.5%
(4) FHA mortgage insurance is required (monthly .85% w/ 1.75% upfront MI premium fee)
(5) Can be used on a multi-family home (duplex, triplex…)
(6) FHA county loan limits apply
(7) Seller can pay up to 6% closing costs
(8) You can borrower up to 110% of the future appraised value
(9) Gift funds allowed for down payment and closing costs


One of the most common mistakes (misunderstandings) is how to write your offer and structure the repairs **INTO** the transaction. Here’s a short overview:
*  Purchase Price: $400,000
* Renovation Costs: $35,000
*  Offer Amount On Purchase & Sale: $435,000
* Down Payment: $15,225 (3.5% down against $435,000 not $400,000)


There are 2 types of FHA renovation loans: The streamline version and the standard. Today, we are talking about the “streamline” version. This option is the most common and allows you to perform minor work repairs up to $35,000. If you need more money for renovations, then the “Standard” 203k loan may be a better option (additional info and overlays may apply).
The allowable repairs for the “streamline” program are:
* Painting
* Energy-efficient upgrades
* Windows
* Roof replacement
* Carpet and flooring
* Appliances
* Repairing health and safety issues
* Kitchen and bathroom remodels
* And more…
Please note: The limit to costs is $35,000 for the streamline 203k loan program. However, FHA requires a buffer equal to 15% of the bids. This “buffer” is to create a contingency fund to cover overages that you may encounter with a contractor. If the contractor remains on task with the bids, then you get a refund of the 15% buffer. So with the 15% buffer factored in, the “real” maximum amount of repairs that you can finance is $31,000 (not $35,000).


(1) Apply for a FHA 203k loan – Apply Here
(2) Complete 203k intro packet/meeting with Dan
(3) Get underwritten approved
(4) Find a contractor w/ FHA 203k experience (must be licensed, bonded, insured)
(5) Get bids, submit to Dan and Team
(6) Order the appraisal (a “subject to” appraisal is made)
(7) Close the loan (you get keys!)
(8) Complete repairs (within 6-months)
(9) Move in! (entire process can take up to 60-days, 45-days is common)

If you have questions about qualifying as first time home buyer in Kentucky, please call, text, email or fill out free prequalification below for your next mortgage loan pre-approval.

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.
10602 Timberwood Circle 
Louisville, KY 40223
Company NMLS ID #1364

Text/call:      502-905-3708

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916

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FHA 203k Kentucky FHA Loan Guidelines (203k FHA Loan) Kentucky