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2022 First-Time Homebuyer Programs in Kentucky

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There are a number of programs in Kentucky to help first-time homebuyers turn the dreams of homeownership into reality. These first-time homebuyer programs include down payment assistance, tax credits and loan programs. However, to qualify, you need to meet a variety of requirements, including income limits, minimum credit score and occupation terms.

It’s important to research these programs before purchasing a home in order to find the right one for your needs.

Kentucky statewide and local first-time homebuyer programs

The Kentucky Housing Corporation (KHC) offers both down payment assistance and tax credits for first-time homebuyers, while many of the state’s cities and counties offer local programs. Eligibility requirements vary by program, so it’s important to review the guidelines for each before applying for approval.

Program nameAssistance amountAssistance typeWhere it’s available
KHC down payment assistance Up to $6,000Repayable 10-year loanStatewide through KHC-approved lenders
KHC Home Buyer Tax CreditEqual to 25% of the annual mortgage interest paid in calendar yearFederal tax creditStatewide through KHC-approved lenders
Louisville Metro Down Payment Assistance ProgramMaximum of 20% of the home’s purchase pricePartially forgivable loan with 0% interest; 50% forgiven after specified time period, remainder due upon sale of the homeLouisville Metro area
Lexington-Fayette Urban County Government (LFUCG) First-Time Homebuyer ProgramVariesNon-repayable mortgage subsidies and 0% to 2% loansLexington

What to know about different types of down payment assistance

Down payment assistance is provided in a variety of forms and depends on what option the organization offering assistance chooses to use. Those include loans, forgivable or partially forgivable loans and grants. The terms for each may vary and must be strictly followed to ensure you don’t lose your down payment assistance.

Loans. Some down payment assistance programs use low-interest loans so you get the money you need upfront to buy a house, but you will have to repay these over a specific period of time.

Forgivable loans. Not all loans for down payment assistance have to be paid back in full or at all. For instance, some loans may forgive a portion of the down payment assistance amount after you’ve resided in the home for a specified period of time, with the remaining balance to be paid by a certain date, such as when you sell the house. Other loans may be completely forgivable once you have lived in the home for a specific period of time. All of these loans may be set up as second mortgage liens on your home but don’t require monthly payments or accrue interest.

Grants. Grants may appear to be free money because they don’t have to be paid back and no lien is placed against your home. However, they typically have strict requirements that dictate how long you must live in the house to avoid paying the grant back if you sell or refinance.

How Kentucky first-time homebuyer programs work

The Kentucky Housing Corporation, local governments and nonprofit and housing authorities all have strict guidelines and requirements you must follow and meet in order to receive assistance purchasing your first home. Some requirements overlap but may have different specifics, such as income limits. It’s important to review these because while you may not qualify for one program, you could qualify for another.

These are basic requirements you will need to meet to qualify for a Kentucky first-time homebuyer program:

1. Fall within the income limits. Every program limits how much money you can make in order to receive assistance when buying a home. For example, the Kentucky Housing Corporation income limits are based on the county in which you reside, while the Louisville Metro Down Payment Assistance Program states your household income must be at or below 80% of the area median income.

2. Receive preapproval from a program-approved lender. Each program has a list of approved mortgage lenders with whom it partners to provide assistance to first-time homebuyers. You will need to work with one of these lenders before applying for a first-time homebuyer program. Keep in mind their qualification requirements for a mortgage could vary greatly from those required by the first-time homebuyer programs in Kentucky.

3. Complete a homebuyer counseling program. Some, but not all, first-time homebuyer programs require participants to complete a homebuyer education course. These cover such topics as preparing to buy a home, budgeting for your mortgage and household expenses, purchase procedures and finding a real estate agent. Read the first-time homebuyer program requirements closely because you may have to complete this course before taking any other steps to apply for assistance.

4. Pay attention to any repayment terms, especially if you plan to sell or refinance. Some programs require you to pay back your assistance within a specific time period, so it’s important to note these repayment schedules. If you decide to sell or refinance before the program’s time restriction expires, you also may have to pay back some of the assistance funds. Know these details upfront so you can plan accordingly if needed.

5. Don’t be surprised by high interest rates. Although some first-time homebuyer programs offer low- or no-interest assistance, not all do. Be prepared for the possibility of higher interest rates to make sure the payment is within your budget.

Kentucky first-time homebuyer program requirements

Before applying for any program or completing a homebuyer counseling program in Kentucky, make sure you meet the first-time homebuyer program requirements so you aren’t wasting your time.

Program name Credit score minimumDTI ratio maximumMaximum income limitHow long you have to live in the home
KHC down payment assistance 62045%$113,925 to $149,450*Duration of loan
KHC Home Buyer Tax Credit620N/A$78,120 to $119,560**Duration of loan
Louisville Metro Down Payment Assistance ProgramN/A43%, or 50% if including student loans$43,050-$71,350 (at or below 80% of the area median income)***Duration of loan (between 5 and 15 years, depending on amount of assistance)
Lexington-Fayette Urban County Government (LFUCG) First-Time Homebuyer ProgramDependent upon agency programDependent upon agency programDependent upon agency programDependent upon agency program

*Income limits vary based on county 

**Income limits vary based on county and family size

***Income limits vary based on family size

THINGS YOU SHOULD KNOW

When checking to see if your income falls within the income limits for a first-time homebuyer program, you need to know the median income limits for where the home is located. To find the current Kentucky income limits, enter your state and county information on the HUD website.

National first-time homebuyer programs

The Kentucky first-time homebuyer programs mentioned above are contingent on approval for a mortgage from a qualified lender. There also are loan programs, sometimes referred to as national first-time homebuyer programs, that could help you purchase the home you want. These loans, though, aren’t usually just for first-time homebuyers.

You can use assistance from a Kentucky first-time homebuyer program to help cover your down payment and/or closing costs for one of these loans.

Conventional loans. Also called traditional mortgages, conventional mortgages typically have stricter qualification requirements and higher loan limits than government-backed mortgage loans. Two well-known programs that offer conventional loans are Fannie Mae HomeReady® and Freddie Mac Home Possible®.

FHA loans. Backed by the Federal Housing Administration (FHA), these loans require lower down payments and lower credit scores than conventional mortgages, although they also usually have lower loan limits. In addition, with an FHA loan, you’ll have to pay a mortgage insurance premium to protect the lender if you default.

VA loans. Backed by the U.S. Department of Veterans Affairs (VA) for active and former members of the military, a VA loan doesn’t require a down payment or mortgage insurance premium. In addition, lenders can’t charge you more than 1% in closing costs, but you will have to pay a VA funding fee between 0.5% and 3.6%.

USDA loans. Backed by the U.S. Department of Agriculture (USDA), this loan is for low- to moderate-income homebuyers looking to buy a home in designated rural areas. You are not required to make a down payment for a USDA loan, and you typically have low interest rates. Plus, loan terms may reach 38 years.

FAQs about Kentucky’s first-time homebuyer programs

Who qualifies as a first-time homebuyer in Kentucky?

According to the FHA, a first-time homebuyer is someone who has not owned a primary residence within the last three years. It also could include someone who previously owned a home with a former spouse during their marriage. Some lenders have looser definitions of a first-time homebuyer, so be sure to discuss their specific definitions when shopping for a mortgage loan.

Can I qualify for down payment assistance in Kentucky?

Provided you meet the program’s requirements for income, credit and property eligibility, you could qualify for down payment assistance in Kentucky.

How much of a down payment do I need to buy a house in Kentucky?

Your down payment depends on the type of mortgage loan you get. For instance, VA and USDA loans don’t require down payments, while an FHA loan may require a down payment of 3.5%. A conventional first-time homebuyer loan may require a down payment as low as 3%.

Home price trends in Kentucky’s major areas

Home prices in Kentucky continue to increase as a result of low housing inventory. For instance, in Fayette County (Lexington), median home prices increased 9.1% from last year to $238,809, resulting in a monthly mortgage payment of $906, which is $51 higher year over year, according to the National Association of Realtors. Similar increases were seen in Jefferson County (Louisville), which saw median home prices increase 9.2% to $210,782 over the past year, bumping up monthly mortgage payments by $46, to $800.

 

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