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Guide to first-time homebuyer assistance programs in Kentucky

Mediafeed 10/2/2022 Kim Franke-Folstad
Kentucky © DepositPhotos.com Kentucky

The housing market is booming in the Bluegrass State.

According to Redfin, the median home price in Kentucky went from $219,800 in April 2021 to nearly $250,000 in April 2022 — a 13% increase in just 12 months. In some Kentucky communities, the numbers were higher.

In Corbin, home prices were up a whopping 67.9% compared with last year, with a median sales price of $235,000. In Union, prices were up 25.3%, with a median selling price of $388,500. And in Lexington, home prices saw a 16% year-over-year increase, with a median selling price of $290,000.

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: The SoFi Guide to First-Time Home Buying

5 Kentucky Programs for First-Time Homebuyers

The Kentucky Housing Corporation (KHC) offers several programs for first-time and other homebuyers.

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.

Recommended: Understanding Mortgage Basics

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 $349,525​
  • Minimum credit score of 660
  • Income must not be more than 80% of the area median income. Limits vary by county .
  • May be required to take homebuyer education course

More Information: Future Homebuyers 

To Apply: Contact an approved lender.

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 $349,525
  • 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 $7,500 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 $349,525
  • No liquid asset review and no limit on borrower reserves
  • Minimum credit score of 620

More Information: Future Homebuyers – Down Payment Assistance 

4. KHC Affordable DAP

The KHC Affordable DAP is open to lower-income 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 1% interest rate.

Availability: Statewide

Assistance Amount: Up to $7,500 for down payment and closing costs

Assistance type: Second loan repayable over a 10-year period at 1%

Benefits and Qualifications Include:

  • Can be used with all KHC loan programs
  • Purchase price up to $349,525
  • No liquid asset review and no limit on borrower reserves
  • Applicants must meet KHC income limits 
  • Minimum credit score of 620

More Information: Future Homebuyers – Down Payment Assistance 

5. 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 $2,000 of annual mortgage interest as a federal tax credit every year for the life of their loan.

Applicants must be first-time homebuyers unless buying in a designated area. Income and home purchase price limits may vary by county.

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 

Recommended: 6 Simple Ways to Reduce a Mortgage Payment

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 brochure or handbook.

Who Is Considered a First-Time Homebuyer in Kentucky?

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.

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 program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

Gift money for the down payment is allowed from certain donors and will be documented 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. You can learn more about FHA loans in general and FHA mortgage limits by area by area.

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, 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, 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.

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.

U.S. 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 2022

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).

  • Percentage of buyers nationwide who are first-time buyers: 34%
  • Percentage of buyers in the NAR’s South region who are first-time buyers: 30%
  • Median household income of first-time buyers nationwide: $86,500 Type of home purchased by first-time buyers:
  • Detached single-family home: 80%
  • Townhouse/rowhouse: 9%
  • Condo/apartment (five or more units): 1%
  • Duplex/condo/apartment (two to four units): 2%
  • Other: 8%

Median home price of first-time homebuyers: $252,000

Median down payment of first-time homebuyers: 7%

Median age of first-time homebuyers: 33

Relationship status of first-time homebuyers:

  • Married: 50%
  • Single females: 20%
  • Unmarried couples: 17%
  • Single males: 11%

First-time homebuyers with kids nationwide:

  • No children: 70%
  • One child: 15%
  • Two children: 11%
  • Three or more children: 5%

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 allows 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-time homebuyer. 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. Because Roth IRA contributions are made with after-tax money, the IRS allows tax-and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. 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. If your employer allows borrowing from the 401(k) plan that it sponsors, 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 provide flexible second mortgages 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.

While you’re considering your options, keep in mind that borrowers who go with a mortgage from a private lender don’t necessarily have to come up with a 20% down payment. (And most buyers don’t.)

FAQ

Should I take first-time homebuyer classes?

Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are 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 33, NAR says. First-time buyers make up 34% of all homebuyers nationwide and 30% in the South.

Learn More:

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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