What to know about buying a house in Kentucky
First-time home buyers in Kentucky have a leg up. Home prices there rose far less quickly between 2021 and 2022 than in the rest of the nation.
Of course, it can still be difficult to save for a down payment and closing costs. But the good news is that Kentucky can offer help ranging from special mortgages to tax credits and down payment assistance. Here’s what you should know.
In this article (Skip to ...)
- KY home buyer overview
- Home loan options
- KY home buyer programs
- First-time buyer grants
- Buying in Kentucky’s cities
- KY mortgage rates
Kentucky home buyer overview
In March 2022, the average listing price for a home in Kentucky was $240,000 according to Redfin. That was an increase of 11.6% year-over-year.
Those figures may look scary to a first-time home buyer. But they’re actually way lower than the national average. Nationwide, the median home price was $412,156 in March 2022. And that was up 17.1% year-over-year.
Kentucky home buyer stats
|Average Home Sale Price in KY||$240,000|
|Minimum Down Payment in KY (3%)||$7,200|
|20% Down Payment in KY||$48,000|
|Average Credit Score in KY1||702|
|Maximum KY Home Buyer Loan2||Up to $7,500 as a 10-yr second mortgage|
Down payment amounts are based on the state's most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.
If you're eligible for a VA loan (backed by the Department of Veterans Affairs) or a USDA loan (backed by the US Department of Agriculture), you may not need any down payment at all.
First-time home buyer loans in Kentucky
If you’re a first-time home buyer in Kentucky with a 20% down payment, you can get a conventional loan with a low interest rate. And you never have to pay for private mortgage insurance (PMI).
Of course, few first-time buyers have saved enough for 20% down. But the good news is, you don’t need that much. Not by a long shot.
Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low-down-payment mortgage programs:
- Conventional 97: Backed by Freddie Mac or Fannie Mae. 3% down payment and 620 minimum credit score. You can usually stop paying mortgage insurance after a few years
- FHA loan: Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. You’re on the hook for mortgage insurance until you refinance to a different type of mortgage, move, or pay off your loan
- VA loan: Only for veterans and service members. Zero down payment is required. Minimum credit score varies by lender but often 620. No ongoing mortgage insurance after closing. These are arguably the best mortgages available, so check your eligibility if you have a military service history
- USDA loan: For those on low-to-moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
- Kentucky Housing Corp. loans: Special mortgages, sometimes with down payment assistance. Also mortgage credit certificates that can reduce your annual, federal tax bill
Note that government loan programs (including FHA, VA, and USDA home loans) require you to buy a primary residence. That means you can’t use these loans for a vacation home or investment property.
In addition, most programs let you use gifted money or down payment assistance (DPA) to cover your down payment and closing costs. Depending on the mortgage loan you choose, you could potentially get into your new house with minimal cash out of pocket.
If you’re unsure which program to choose for your first mortgage, your lender can help you find the right match based on your finances and home buying goals.
Kentucky first-time home buyer programs
The Kentucky Housing Corporation (KHC) offers several mortgage programs that may come with assistance. These programs are based on standard loan programs, though KHC sets its own minimum requirements:
- Conforming (conventional) loans: 3% down payment, 660 minimum credit score
- FHA loans: 3.5% down, minimum credit score of 620
- VA loans: Zero down payment, 620 min. score. Only for veterans, service members, and closely related groups
- USDA (Rural Housing Service) loans: Zero down payment, 620 min. score. Only for housing in designated rural locations
At the time of writing in My 2022, there was a purchase price limit of $346,644 across all those loans. But check when you apply to see if that’s changed. And these programs come with income caps. Stricter income caps apply if you want the best deal (including down payment assistance) on a conforming loan.
Kentucky first-time home buyers may also be eligible for mortgage credit certificates through the KHC. It says: “The tax credit provides a dollar for dollar reduction of your federal income taxes, every year you occupy the home. The Tax Credit is equal up to 20 percent of the annual mortgage interest paid in a calendar year.” And yes, it’s available even if you take the standard federal tax deduction.
You can also get housing counseling and education through the KHC.
Kentucky first-time home buyer grants
Unlike the housing agencies in many other states, the Kentucky Housing Corporation doesn’t provide grants or forgivable loans for those entering its down payment assistance program.
Instead, you get a 10-year second mortgage that you must pay back with interest. And you can borrow up to $7,500. Most borrowers pay interest at a rate of 3.75%. But, if you have a low income (see caps), you may get a 1% rate.
Click the links above for more details. Note that interest rates are subject to change and may be different by the time you read this.
Buying a home in Kentucky’s major cities
Home prices are rising more quickly in Kentucky’s three biggest cities than elsewhere in the state. In the case of Bowling Green, they shot up by an astonishing 23.9% over the 12 months ending in March 2022.
As far as home prices are concerned, Louisville is the most affordable city, followed by Bowling Green. But Lexington is significantly more costly than either.
And yet only Louisville has its own down payment assistance program. The others suggest you contact third parties for help.
Louisville first-time home buyers
The median listing price for homes in Louisville was $223,900 in March 2022. That was up 11.9% year-over-year, according to Realtor.com.
At those home prices, making a down payment in Louisville, Kentucky, might cost:
- $6,720 for 3% down payment
- $44,780 for 20% down payment
The Louisville Metro Down Payment Assistance Program is better than KHC’s offering. So think about taking it, if you’re eligible. If approved, you can borrow the amount you need but must contribute $1,500 of your own money.
Its loans have a 0% rate and half the amount you borrow will be forgiven after an agreed period. That time varies depending on how big your loan is. But you won’t have to repay the rest until you sell the home or refinance.
This program is open only to those on lower incomes: $43,050 for a one-person household, rising in stages to $71,350 for a six-person one. (Again, those limits may be subject to change.)
Download the Louisville-Jefferson County Metro Government’s handbook for all the details.
Lexington first-time home buyers
The median listing price for homes in Lexington was $300,000 in March 2022. That was up 13.2% year-over-year, according to Realtor.com.
At those home prices, making a down payment in Lexington, Kentucky might cost:
- $9,000 for 3% down payment
- $60,000 for 20% down payment
The Lexington-Fayette Urban County Government says it “provides nonrepayable mortgage subsidies and 0 — 2% loans to lower-to-moderate-income first-time home buyers.” However, it doesn’t deal directly with the public.
Bowling Green first-time home buyers
The median listing price for homes in Bowling Green was $279,900 in March 2022. That was up an eye-watering 23.9% year-over-year, according to Realtor.com.
At those home prices, making a down payment in Bowling Green, Kentucky might cost:
- $8,400 for 3% down payment
- $55,980 for 20% down payment
The City of Bowling Green says, “Through a Housing Choice Voucher Homeownership Program, you may be able to own your own home and use your monthly Section 8 assistance to help pay your mortgage.”
But you can’t deal with the city directly. And you should approach HANDS, Inc. (270-796-4176) or Live the Dream (270-467-7120) for information about programs.
Where to find home buying help in Kentucky
All the organizations we’ve listed above should provide advice freely to any first-time home buyer in Kentucky.
In addition to our selection, the U.S. Department of Housing and Urban Development (HUD) provides a list of statewide and city- and county-specific programs across Kentucky. The list is as follows:
- HUD Community Development Block Grants (CDBG) — Kentucky contacts — HUD provides grant money to communities and those funds may be used to assist homebuyers
- HUD HOME Program — Kentucky contacts — HUD provides grant money to communities designated as participating jurisdictions for assisting homebuyers, rental assistance, and other housing initiatives
- Community Ventures Corporation Kentucky Home Financing
- The Kentucky Housing Corporation offers:
- Habitat for Humanity — Through volunteer labor and donations of money and materials, Habitat builds and rehabilitates simple, decent houses with the help of the homeowner (partner) families
- Federal Home Loan Bank of Cincinnati — Serves Kentucky residents by offering various homebuying programs including Welcome Home grants. For more information, you may call 1 (888) 345-2246
- Kentucky Area Development Districts (ADDs) — Contact your local ADD to find out more about local homebuying programs
- Kentucky Association for Community Action — Helps to fund housing programs for low-income residents
- Federal Appalachian Housing Enterprise (FAHE) — Provides housing assistance in rural, low-income, Appalachian communities
- Housing Partnership, Inc. — Provides affordable housing services for residents of Jefferson County
- Secondary financing/down payment assistance programs are listed by state
- USDA Rural Development — Programs that reduce the cost of homeownership for low and moderate-income families.
What are today’s mortgage rates in Kentucky?
When you’re ready to buy, be sure to apply with at least three to five lenders to make sure you’re getting the lowest mortgage rate available.
Rate quotes can sometimes vary by as much as 0.50% between lenders, so shopping around for rates could save you thousands on your new home.
1Source: Experian.com 2022 study of 2021 data
2Based on a review of the state's available DPA grants at the time this was written