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With a cost of living much lower than the national average — and housing costs below that benchmark, as well — Kentucky can be an affordable place to call home. The home of the Kentucky Derby, it boasts a solid economy, thanks to industries like shipping and transportation, automotive manufacturing, health care and, of course, bourbon distilling.
Whether you’re looking for a home in the (relatively) big burgs of Louisville or Lexington, bucolic and historic Berea or Bardstown, or the state capital Frankfort, the Kentucky Housing Corporation might be able to help. The organization is dedicated to promoting affordable housing for both first-time and repeat homebuyers across the Bluegrass State.
Kentucky first-time homebuyer programs
KHC Conventional Preferred
The Kentucky Housing Corporation’s (KHC) Conventional Preferred program offers a 30-year mortgage with a fixed interest rate. You can be a first-time homebuyer, but that isn’t required to take advantage of this program. There’s no minimum borrower contribution or reserves needed to be eligible, but you’ll need to pay for mortgage insurance, which comes at a reduced rate to make your monthly mortgage payment more affordable. Depending on the lender you work with, you might also be required to take an education course pre-closing.
- 3 percent down payment (down payment assistance available)
- 660 minimum credit score
- Maximum 40 percent to 50 percent debt-to-income (DTI) ratio, depending on loan type
- Must be at or below 80 percent area median income (AMI)
- Must be a single-family home, townhome, condominium or manufactured home (according to agency guidelines and must be on a permanent foundation); two-unit homes (duplexes) aren’t eligible
- Must be in Kentucky
- Must be a primary residence
- Must meet KHC purchase price limit of $481,176
KHC Conventional Preferred Plus 80
The Conventional Preferred Plus 80 program through KHC also offers a 30-year mortgage with a fixed interest rate, but standard mortgage insurance coverage is required. As with the Conventional Preferred program, you can be a first-time or repeat buyer to be eligible.
The down payment, credit score and DTI ratio requirements for the Conventional Preferred Plus 80 program are the same as the ones for the Conventional Preferred program, and the maximum purchase price is also $481,176. However, the county income limits are different and range from $143,500 to $181,300 (in 2023, the latest figures as of this writing). These only apply to the applicant, not the entire household.
Kentucky down payment assistance
KHC Regular Down Payment Assistance Program (DAP)
KHC offers down payment help to borrowers through the Regular Down Payment Assistance Program (DAP), a loan of up to $10,000. The loan is repayable over 10 years at an interest rate of 3.75 percent.
The program is open to all KHC first mortgage borrowers using the same application. You can be a first-time homebuyer, but that’s not a requirement. The purchase price of your home can’t exceed $481,176, but there’s no limit on the cash reserves you can have, and your liquid assets won’t be considered when determining your eligibility.
Other Kentucky homebuyer assistance programs
Home Buyer Tax Credit
As a first-time homebuyer in Kentucky, you are eligible for a federal tax credit of as much as 20 percent of your annual mortgage interest, up to $2,000, per year. This credit, known as a mortgage credit certificate (MCC), can help make homeownership more affordable. To be eligible, the home must be no more than the purchase price limit of $481,176. There are also income limits based on county and household size.
Louisville Down Payment Assistance Program
For first-time and repeat buyers, the city of Louisville (Kentucky’s largest) also offers a forgivable loan to help you with your down payment. The amount of assistance is based on your individual situation, and can be forgiven anywhere between five and 15 years after you occupy the home, assuming you stay in the home for that time period.
You must be buying a home in the Louisville metro area to qualify for the assistance, and your income must also be at or below 80 percent of the AMI, which ranges from $50,250 for a one-person household to $83,250 for a six-person household. You must also have $1,500 in savings and complete a homebuyer education course to be eligible.
In addition, there are purchase price limits, which depend on the size of the home and whether the property is new or preowned. The limit for an existing single-family home is $235,000, while the limit for a new single-family home is $315,000.
Other Kentucky first-time homebuyer loans
On a national level, there are loans geared toward first-time homebuyers that Kentuckians can take advantage of. Some of the loans you can explore include:
- FHA loans: Loans insured by the Federal Housing Administration (FHA) have more lenient financial requirements than other loans. You can get an FHA loan with 3.5 percent down and a credit score as low as 580.
- VA loans: For active-duty military, veterans and surviving spouses, a loan guaranteed by the U.S. Department of Veterans Affairs (VA) is a great option. These loans typically come with lower interest rates and don’t require a down payment.
- USDA loans: Loans guaranteed by the U.S. Department of Agriculture (USDA) also require no down payment, but you’ll need to buy in a designated rural area and meet area-specific requirements.
- HomeReady and Home Possible loans: HomeReady and Home Possible are loan programs created by government-sponsored enterprises Fannie Mae and Freddie Mac. They’re specifically for first-time homebuyers, requiring only 3 percent down and having more flexible income requirements.
Homebuyers can obtain an FHA, VA or USDA loan with the help of KHC. Getting one of these loans through KHC helps make you eligible for down payment assistance. These types of loans either require a low down payment or none at all, which can be ideal for first-time homebuyers especially. VA loans are only available to military members and veterans, and USDA loans are available for properties in specific rural areas. FHA loans are widely available. If obtaining one of these loans through KHC, the required minimum credit score is 620.
Now that you have the details on Kentucky’s first-time homebuyer programs, you’re ready for the next step: researching national first-time homebuyer options. After you know your options for help, shop around for the best mortgage rates in Kentucky based on your needs. Compare at three different offers from lenders, looking at their rates and fees, before deciding.