The Kentucky Mortgage USDA Loan Repair Escrow program is intended to help Kentucky borrowers utilizing the Rural USDA Housing Loan Programs to save money by rolling in the cost of the purchase plus the repairs in the same loan, but cannot exceed 10% of the final loan amount. To qualify for this program, borrowers must meet the standard income, locations, size and additional factors set forth by USDA. The funds for the repairs can be used for both exterior and interior repairs.
Examples of Eligible Repairs
- Replace HVAC
- Repair and paint rotted facia boards
- Repair holes in kitchen floor
- Install safety eyes on garage door
- Install a stove and dishwasher that are drop in
- Install hot water heater
Repair escrows, post issuance of the Loan Note Guarantee, are acceptable provided the home is habitable, as determined by the lender. All items of new construction or repairs must be 100 percent (100%) complete in accordance with plans and specifications except for minor items not affecting the livability of the structure or that cannot be completed due to weather conditions.
The lender assumes responsibility for completion of repairs in accordance with the conditions set forth in this Section for any repair escrow established. The combination of both exterior AND interior repair escrows cannot exceed 10 percent of the final loan amount.
Most repairs items will be required to be completed within 180 days of loan closing. This period may be extended, at the discretion of the Agency, for homes that need exterior repairs but are in an area experiencing inclement weather conditions. The maximum exterior repair escrow period when an extension is granted is limited to 240 days. Extensions may be granted beyond 180 days for exterior escrows only.
Escrow for Exterior Development When exterior development work is planned and cannot be completed because of inclement weather, material shortages, or other acceptable reasons, an escrow account Evidence of thermal standards for new construction.
The Lender’s file must contain evidence thermal standards meet or exceed the International Energy Conservation Code (IECC) in effect at the time of construction.
Documentation of conformance may be by one of the following options:
1. The builder may certify confirmation with the IECC standards.
2. A qualified, registered architect or a qualified, registered engineer may certify confirmation with IECC standards. HB-1-3555 12-24 may be established. The Agency may issue a Loan Note
Guarantee prior to the completion of repairs provided all of the following conditions are met:
The cost of any remaining work is not greater than 10 percent of the final loan amount, provided an interior escrow is not required;
The livability of the dwelling is not affected;
A signed contract between the borrower and the contractor is in effect for the proposed work;
The funds to be escrowed are not less than the repair cost contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost;
The Closing Disclosure 1 reflects the holdback;
The development will be complete within 180 days of closing, unless an extension is granted by the Agency for inclement weather conditions;
The escrow account is established in a federally supervised financial institution.
An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must:
Be completed by the appraiser;
State that the improvements were completed in accordance with the requirements and conditions in
.Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller’s personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller. Escrow for Interior Development Repair escrows for interior repairs are subject to 10 percent when an exterior escrow for repairs has not been established. Otherwise, the combination of both an interior AND exterior repair escrow is subject to a maximum of 10 percent of the loan amount.
When the dwelling is complete with the exception of minor interior development work, the Agency may issue the loan note guarantee on the loan if the following conditions are met when establishing an interior escrow:
The cost of any remaining interior work is not greater than 10 percent of the final loan amount provided an exterior escrow is not required ;
The livability of the dwelling is not affected;
A signed contract between the borrower and the contractor is in effect for the proposed repair work;
The funds to be escrowed are not less than the contractor’s repair contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost ;
The Closing Disclosure reflects the holdback;
The development will be complete within 180 days of closing; and
The escrow account is established in a federally supervised financial institution;
An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must:
Be completed by the appraiser,
State that the improvements were completed in accordance with the requirements and conditions in the original appraisal report, and HB-1-3555 12-26
Be accompanied by photographs of the completed improvements
; The individual performing the final inspection of the property must sign the completion report.
The lender is responsible for monitoring the completion of the work and the release of funds to pay for the work. All documentation supporting the development and confirmation of the completion will be retained in the lender’s permanent mortgage file and is subject to the certification of Form RD 3555-18/18E.
Any funds remaining in the escrow account upon completion of the work, that are representative of loan funds or a seller concession as part of the sales contract, will be used to reduce the unpaid principal balance of the mortgage.
Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller’s personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller.
Escrow completion for interior or exterior repairs on an existing dwelling – without the assistance of a contractor
When a borrower will complete the planned interior or exterior development on an existing dwelling without the services of a contractor, the requirement for an executed contract noted in this section is waived when these three conditions are met:
The estimated cost to complete the work is not greater than 10 percent of the total loan amount; an
The escrow amount is less than or equal to $10,000; and
The lender has determined the borrower has the knowledge, skills and time necessary to complete the work within the maximum 180 day limit.
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The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.
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