Kentucky Mortgage Rates

Known as the “Bluegrass State,” Kentucky got its nickname from the durable grass that grows throughout the state. It’s also the birthplace of bluegrass music and features the Country Music Highway, which winds through eastern Kentucky to the birthplaces of country music stars like Loretta Lynn and The Judds.

The Kentucky housing market is currently seeing a shortage of inventory. In the first quarter of 2019, inventory in the state dropped by about 3%. This is driving up home prices, as there are fewer options for buyers. In the first quarter of 2019, the number of homes sold in the state dropped a bit compared to the same period last year, but only by about 1%, according to Kentucky Realtors.

Overall, Kentucky’s housing market is a bit sluggish when compared with the national average. Properties were on the market for an average of 36 days in March 2019, according to the National Association of REALTORS. In Kentucky, that number is significantly higher, at 118 days in March 2019. That means that even though home prices are creeping up, there are still opportunities for prospective Kentucky homebuyers.

The rules and costs of buying a home in Kentucky

Every state has laws to protect both buyers and sellers during real estate transactions, and Kentucky is no exception. In fact, the state’s rules around who can close real estate transactions have been a topic of heated debate.

Home seller and buyer laws

When you buy a home, you want to know exactly what you’re getting, including the good, the bad and the ugly. Kentucky requires home sellers to complete a Seller’s Disclosure of Property Condition, which outlines every aspect of the property and whether there are any problems present. In addition to the property condition, the seller must also disclose whether there has been radon gas testing or past infestations, and if there is any pending legal action against the property.

Once you’re ready to close, you’ll find that Kentucky does not technically require an attorney to be present. Many closing transactions are completed by title agencies. That said, Kentucky does have strict laws prohibiting non-lawyers from practicing law, so non-attorneys are not supposed to answer legal questions during closing transactions. Non-attorney closings should be “point and sign” transactions. To cover your bases and ensure your questions are answered, you may want to have a real estate attorney represent you at closing, even though it is not technically required.

Kentucky is a judicial foreclosure state, which means that lenders need to go through circuit court to foreclose on a home. This process is lengthy, but it does give homeowners time to work out a solution with lenders rather than lose their home.

Kentucky is also an equitable distribution state, which means that any property purchased during a marriage will be divided equitably between the parties in the event of a divorce. This doesn’t necessarily mean property will be divided 50/50, though. The court will decide who gets marital property based on factors such as each spouse’s financial situation, how much each spouse contributed to the property and who will be living in the marital home.

Taxes

In Kentucky, the seller typically pays the real estate transfer tax. The tax rate is $0.50 per $500 of value for the home, and the funds collected are kept by the county. There are exceptions to the transfer tax, such as when property is transferred between a parent and child or a grandparent and grandchild.

Kentucky has some of the lowest property taxes in the country. In fact, only seven states have a lower median property tax. The median Kentucky property tax is $843 per year. The county with the lowest property taxes is Wolfe County, which collects an average of $293 in property taxes per year. The highest property taxes are found in Oldham County, at an average of $2,244.

Even with its low property tax rate, Kentucky does offer some property tax exemptions. Property owners who are 100% disabled and those who are 65 or older may receive an exemption. The exemption doesn’t eliminate your property tax bill, but it does reduce the value of your property by $39,300, which lowers your overall property tax bill.

Conforming loan limits

For 2019, the conforming loan limit across Kentucky is $484,350. Although allowances are made for high-cost areas, all counties in Kentucky adhere to this limit.

A conforming loan is a loan that meets the criteria set by the two largest loan buyers, Fannie Mae and Freddie Mac, both of which are government-supported enterprises. Each year, the limit set on conforming loans is based on the average change in home price every year.

Programs for homebuyers in Kentucky

The Kentucky Housing Corporation offers loan and down payment assistance programs to help homebuyers. Each program has different requirements to qualify for a mortgage.

Kentucky Housing Corporation (KHC) Preferred Risk/Preferred Program

This program offers a 30-year, fixed-interest rate program for homebuyers. The Preferred program requires borrowers to obtain mortgage insurance.

Who qualifies:

  • Borrowers must meet the income limits, which vary by county.
  • If all borrowers are first-time homebuyers, at least one borrower must complete a homebuyer education course.
  • Borrowers must make a down payment of 3% or more.
  • Borrowers must have a credit score of at least 660.

Learn more

Kentucky Housing Corporation (KHC) FHA

KHC FHA offers government-insured, 30-year, fixed-interest rate mortgages.

Who qualifies:

  • Borrowers must meet the income limits, which vary by county.
  • Borrowers must make a minimum 3.5% down payment.
  • Borrowers must have a credit score of at least 620.

Learn more

Kentucky Housing Corporation (KHC) VA

This program for qualified military veterans offers a 30-year, fixed-rate mortgage with no down payment or mortgage insurance requirement.

Who qualifies:

  • Borrowers must meet VA guidelines.
  • Borrowers must meet income limits, which vary by county.
  • Borrowers must have a credit score of at least 620.

Learn more

Kentucky Housing Corporation (KHC) RHS

This program offers a 30-year, fixed-rate mortgage with no down payment if you purchase a home in a rural area as defined by the Rural Housing Service (RHS).

Who qualifies:

  • Borrowers must meet income limits, which vary by county.
  • Borrowers must have a credit score of at least 620.

Learn more

Kentucky Housing Corporation (KHC) Regular and Affordable DAP

KHC offers up to $6,000 in down payment assistance to those who qualify. Regular DAP offers a 10-year loan at a 5.5% interest rate, and Affordable DAP offers a 10-year loan at a 1% interest rate.

Who qualifies:

  • Borrowers must meet the purchase price limitation of $314,827 or less.
  • All KHC first-mortgage recipients can qualify for Regular DAP.
  • Borrowers must meet lower income limits to qualify for Affordable DAP.

Learn more

Rate shopping tips

Even with Kentucky’s relatively affordable home prices, it pays to shop around for a mortgage. Even a small difference in your interest rate can save you thousands over the life of your mortgage.

Contact at least 3 lenders on the same day

Mortgage rates change every day. To be able to compare lenders accurately, contact each lender on the same market day and aim to get at least three quotes.

Give each lender the same information

Sorting through mortgage information is challenging enough, but if you have a quote for a 15-year, fixed-rate mortgage from one lender and a quote for a 30-year, fixed rate mortgage from another, it’s going to be even more difficult to compare the offers. Ask each lender for information on the same type of mortgage, and be consistent when providing information to the lender regarding your income and debt.

Add up all the lender fees to confirm the costs

It’s natural to want to zero in on the interest rate, and that’s important. But there are other costs to look at, too, including points, fees and any potential discounts. Add up all of the associated fees to get a sense of the true cost of the mortgage.

Know when to lock in the rate

When you can lock down your interest rate varies by lender. Some lenders will lock in the rate when they send you an estimate, but others wait further along in the process. Ask potential lenders when the rate locks and how long the lock lasts. Some lenders also offer a “float down” provision, which allows you to adjust your rate if mortgage rates drop.

The information in this article is accurate as of the date of publishing.