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. Best-known for 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 loan programs

KHC Conventional Preferred

The Kentucky Housing Corporation’s (KHC) Conventional Preferred program offers a 30-year mortgagee 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 a pre-closing education course.

Borrower requirements:

  • 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 meet KHC income limits at or below 80 percent of the area median income (AMI), which vary according to county and range from $35,360 (Carter County) up to $67,760 (Boone, Bracken, Campbell, Gallatin, Grant, Kenton and Pendleton counties); income cap only applies to applicant, not household

Property requirements:

  • 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 $349,525

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 $340,525. However, the county income limits are different and range from $131,600 to $173,425. These only apply to the applicant, not the entire household.

FHA, VA and USDA loans

Homebuyers can also obtain an FHA, VA or USDA loan with the help of KHC. 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.

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 $349,525, but there’s no limit on the cash reserves you can have, and your liquid assets won’t be considered when determining your eligibility.

KHC Affordable DAP

For lower-income borrowers, KHC also offers up to $6,000 in a 10-year down payment assistance loan, but at an interest rate of just 1 percent. This Affordable DAP is available to both first-time and repeat buyers, but you must meet certain income limits to qualify. These vary by county and range from $35,360 to $67,760.

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 $47,450 for a one-person household to $78,600 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 $220,000, while the limit for a new single-family home is $257,000.

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 $349,525; there are also income limits based on county and household size.

Other first-time homebuyer loan programs

While you’re considering your options as a first-time homebuyer in Kentucky, be sure to explore nationally available programs that could also help you get into a home sooner. Check out Bankrate’s guide to first-time homebuyer loans and programs.

Get started

Now that you have the details on Kentucky’s first-time homebuyer programs, you’re ready for the next step. The Kentucky Housing Corporation (KHC) has relationships with preferred mortgage lenders who can help you get the loan process started. While you can’t apply for a mortgage through the KHC website, the agency does service loans after closing.

Remember that it’s important to shop around for the best mortgage rates and loan offers based on your unique situation, and compare products to be certain you’re getting the best deal.