Kentucky First-Time Home Buying Assistance Programs
By Kim Franke-Folstad
(Last Updated – 03/2024)
The housing market is booming in the Bluegrass State.
According to Redfin, the median home price in Kentucky was 242,800 in January 2024 — a 6.8% increase in just 12 months. In some Kentucky communities, the numbers were higher.
In Hopkinsville, home prices were up a whopping 42% compared with last year, with a median sales price of $270,000. In Elizabethtown, prices were up almost 30%, with a median selling price of close to $300,000. Lexington, one of the larger cities, has a median sale price of $310,343 and prices increased 8.9% in the year ending January 2024.
Those price jumps are good news for home sellers, of course, but the hot seller’s market can be a problem for first-time homebuyers in Kentucky. Fortunately, the state and some counties offer financial help to buyers who meet criteria that include income and home price limits. Longstanding federal loan programs also could improve a buyer’s chances of success.
Recommended: First-Time Homebuyer Guide4 Kentucky Programs for First-Time Homebuyers
The Kentucky Housing Corporation (KHC) offers several programs for first-time and other homebuyers who are looking for a home mortgage loan.
Most are designed to help low- to moderate-income individuals and families. Participants may have to meet certain standards to qualify, including income and purchase price limits. Typically, the home must be the buyer’s primary residence. And at least one of the buyers may have to complete a homebuyer education course.
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1. KHC Conventional Preferred Loan Program
The KHC Conventional Preferred loan program offers first-time and other qualifying homebuyers a fixed-rate 30-year mortgage with a 3% down payment. Borrowers pay mortgage insurance at a reduced rate.
Availability: Statewide
Type of Assistance: 30-year fixed-rate mortgage with 3% down payment; reduced rate mortgage insurance
Benefits and Qualifications Include:
• Can be used with all KHC down payment assistance programs
• Purchase price limit is $481,176
• Minimum credit score of 660
• Income must not be more than 80% of the area median income
• May be required to take homebuyer education course
More Information: Future Homebuyers
2. KHC Conventional Preferred Plus 80
The Conventional Preferred Plus 80 loan program also offers a 30-year mortgage with a 3% down payment, but there are important differences. Standard mortgage insurance is required with this loan, and the income limits are higher.
Availability: Statewide
Type of Assistance: 30-year fixed-rate mortgage with 3% down payment
Benefits and Qualifications Include:
• Can be used with all KHC down payment assistance programs
• Purchase price limit $481,176
• Minimum credit score of 660
• Applicant income limits vary by county
• May be required to take homebuyer education course
More Information: Future Homebuyers
3. KHC Regular Down Payment Assistance Program (DAP)
The KHC Regular DAP is open to all KHC first mortgage borrowers. It offers down payment assistance through a second loan of up to $7,500. The loan is repayable over a 10-year period at a 3.75% interest rate.
Availability: Statewide
Assistance Amount: Up to $10,000 for down payment and closing costs
Assistance Type: Second loan repayable over a 10-year period at 3.75%
Benefits and Qualifications Include:
• Can be used with all KHC loan programs
• Purchase price up to $481,176
• No liquid asset review and no limit on borrower reserves
• Minimum credit score of 620
More Information: Future Homebuyers — Down Payment Assistance
4. KHC Home Buyer Tax Credit
With the KHC Home Buyer Tax Credit program, low-income borrowers can use a mortgage credit certificate to claim up to 20% of annual mortgage interest as a federal tax credit every year for the life of their loan. (The IRS caps the annual credit amount at $2,000.)
Applicants must be first-time homebuyers unless buying in a designated area. Income limits may vary by county. The home purchase price limit is $481,176.
There are fees associated with applying for and receiving a mortgage credit certificate. Often the savings from the lifetime of the credit outweigh the fees.
More Information: Home Buyer Tax Credit
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City and County First-Time Buyer Programs
If you’ve already picked out which Kentucky city or county you hope to make your home, you may want to research the local buyer assistance programs that are available. Here’s the rundown on two.
Lexington First-Time Homebuyer Program
The Lexington-Fayette Urban County Government offers non-repayable mortgage subsidies and 0% to 2% loans to low- to moderate-income first-time homebuyers through REACH Inc. and Habitat for Humanity. Recipients must currently reside in Lexington and the purchased home must be in Lexington.
For information on benefits, eligibility requirements, and who to contact for help, you can check out the program’s website .
Louisville Down Payment Assistance Program
The Louisville Metro Down Payment Assistance Program offers down payment and/or closing cost assistance to low- to moderate-income households through 0% interest partially forgivable loans. Assistance is based on the home’s purchase price and individual need.
For information on benefits and eligibility requirements, check out the program website .
Who Is Considered a First-Time Homebuyer in Kentucky?
A first-time homebuyer in Kentucky, as elsewhere, is typically defined as someone who hasn’t owned a primary home for at least three years. It’s always a good idea, though, to be clear on all current eligibility requirements before applying for any program.
How to Apply to Kentucky Programs for First-Time Homebuyers
In general, approved lenders and specially trained real estate agents can inform applicants and guide them through the process.
KHC Programs
It might be a good idea to familiarize yourself with the eligibility criteria if you’re interested in the Kentucky Housing Corporation loan programs and down payment assistance.
To apply, an approved lender can steer you from start to closing. Or call the KHC at (502) 564-7630.
Local Programs
Note the resources above for the Lexington and Louisville programs.
The U.S. Department of Housing and Urban Development (HUD) lists other possibilities , and you can dig further into whether your particular city or county offers assistance.
MCC Program
Borrowers can apply for a mortgage credit certificate when they take out a home loan through a state-approved participating lender.
Federal Programs for First-Time Homebuyers
Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.
The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.
Federal Housing Administration (FHA) Loans
The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the FHA loan program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.
In addition to examining your credit score, lenders will look at your debt-to-income (DTI) ratio, which is your monthly debt payments compared with your monthly gross income. FHA loans allow a DTI ratio of up to 50% in some cases, vs. a typical 45% maximum for a conventional loan.
Gift money for the down payment is allowed from certain donors. You’ll likely need to document this in a gift letter for the mortgage.
FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. For a $300,000 mortgage balance, upfront MIP would be around $5,250 and monthly MIP, at a rate of 0.55%, would be around $137. You can learn more about these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.
Freddie Mac Home Possible Mortgages
Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.
The Home Possible mortgage is for buyers who have a credit score of at least 660.
Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.
Fannie Mae HomeReady Mortgages
Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.
For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .
Fannie Mae Standard 97 LTV Loan
The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.
Department of Veterans Affairs (VA) Loans
Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, which can be used to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.
Another benefit of VA loans is that they do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%. And they have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.
Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.
Native American Veteran Direct Loans (NADLs)
Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike the VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance but does charge a funding fee.
US Department of Agriculture (USDA) Loans
No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance. The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .
HUD Good Neighbor Next Door Program
This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.
First-Time Homebuyer Stats for 2024
Ever wonder where you fit amid the mix of buyers who are out there shopping for their first home? Here are some recent first-time homebuyer stats from the National Association of Realtors® (NAR) and Redfin.
• Percentage of buyers nationwide who are first-time buyers: 32%
• Median household income of first-time buyers nationwide: $71,000
• Median home price of first-time homebuyers (according to Redfin): $242,000
• Median down payment of first-time homebuyers: 8%
• Median age of first-time homebuyers: 35
Relationship status of first-time homebuyers:
• Married: 59%
• Single females: 19%
• Unmarried couples: 9%
• Single males: 10%
70% of first-time homebuyers did not have children under 18
79% of first-time homebuyers purchased a detached, single-family house
Additional Financing Tips for First-Time Homebuyers
In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:
• Traditional IRA withdrawals. The IRS permits qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-timer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.
• Roth IRA withdrawals. The IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. (After all, Roth IRA contributions are made with after-tax money.) You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.
• 401(k) loans. Some employers allow borrowing from the 401(k) plan that they sponsor. If so, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.
• State and local down payment assistance programs. Usually offered at the regional or county level, these programs make flexible second mortgages possible for first-time buyers looking into how to afford a down payment.
• The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.
• Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.
• Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.
The Takeaway
Being a first-time homebuyer can be especially challenging during a seller’s market. Even if you’ve done some mortgage calculations and you’re confident you can afford a home’s monthly payments, saving enough for a down payment and closing costs can be a major hurdle.
However, if you can qualify for one of the many first-time homebuyer programs in Kentucky, or a federal program, you may be able to reduce those costs. And even if you don’t qualify, remember that many borrowers don’t necessarily have to come up with a 20% down payment. (In fact, most buyers don’t.)
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.FAQ
Should I take first-time homebuyer classes?
Good information is key to a successful home-buying experience for anyone, but especially for newcomers to the housing market. First-time homebuyer classes are actually required for some government-sponsored loan programs.
Do first-time homebuyers with bad credit qualify for homeownership assistance?
Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores, with interest rates and other loan pricing competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications. That’s why it’s important to take all possible steps to improve your credit standing before you go house hunting.
Is there a first-time homebuyer tax credit in Kentucky?
Yes. The Kentucky Housing Corporation administers a mortgage credit certificate program that allows first-time buyers to claim a portion of their annual mortgage interest as a federal tax credit every year for the life of their loan.
Is there a first-time veteran homebuyer assistance program in Kentucky?
Qualified applicants can pair a VA-backed home loan with a Kentucky down payment assistance program.
What credit score do I need for first-time homebuyer assistance in Kentucky?
Most Kentucky programs require a minimum FICO score of 620 or 660, depending on the loan type.
What is the average age of first-time homebuyers?
The typical first-time homebuyer is 35, the second-oldest first-time buyer age in the four decades that the National Association of Realtors® has been compiling data.
Photo credit: iStock/jnatkin
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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