How to Buy a House in Kentucky: A Homebuyer’s Guide

If you are not sure where the best or cheapest places to buy a house in Kentucky are, a real estate agent can help. A real estate agent will guide you through the homebuying process, including arranging tours of properties that meet your budget and needs.

It is important to work with a reputable agent since this will make it possible to access the best properties available and avoid costly homebuying mistakes.

If you are not sure how to find the best agent for your needs, make sure to:

• Ask for reputable agent referrals from people you trust
• Look for an agent that understands the local housing market
• Verify the agent’s licensing, experience and training
• Check references

If you are looking for the cheapest places to buy a house in Kentucky, it’s important to remember that the cost of living can vary widely depending on where you choose to live.

Before choosing the best location for your home, it is important to consider the cost of the following:

• Utilities
• Food
• Healthcare
• Transportation
• Education
• Property taxes
• Entertainment

You can use MoneyGeek’s cost of living calculator to compare the cost of living in different Kentucky cities.

On average, Kentucky is one of the cheaper states in terms of the cost of living, but you can save even more by buying a home in the more affordable neighborhoods within the state.

For instance, living in the suburbs is often more affordable. However, the downside is that these areas may have fewer social amenities such as hospitals, schools and malls compared to metropolitan areas.

In Kentucky, Zillow found that the most affordable housing costs were in neighborhoods like Bradsfordville, Elk Horn and Campbellsville.

Homebuyers in Kentucky can choose from different types of mortgage loans. Each type of mortgage has different requirements and rates. Mortgage rates also vary depending on the lender and the borrower’s profile, so factors like your income and credit history will impact your mortgage options.

In Kentucky, the average interest rates for different 30-year mortgages are:

• Conventional home loans: 6.3%
• VA loans: 5.5%
• USDA loans: 3.3%
• FHA loans: 6.2%

Mortgage loans like VA and USDA tend to have lower rates, but keep in mind that they have specific eligibility requirements. For instance, only veterans and active service members only qualify for VA loans.

When buying a home, it is important to understand how much you will pay for your monthly mortgage loan. Understanding mortgage rates will also help you figure out if you can afford the payments required.

You can use MoneyGeek’s mortgage calculator to get an estimate of your mortgage payments based on factors like the home price, down payment and the length of your mortgage. You can also compare rates between conventional and FHA home loans to find the best option for your profile.

Once you get an estimate, you can use the mortgage calculator to compare your options and find the best loan for you based on down payment costs, APR rates and term limits.

When buying a house in Kentucky, mortgage lenders will determine your approval and rates by evaluating you based on the following factors:

• Credit score: Lenders will use your credit score to assess your creditworthiness. Borrowers with good credit are more likely to be approved for a mortgage.
• Income: Lenders assess your income to determine your ability to pay back your mortgage.
• Debt-to-income ratio (DTI): Some lenders will specify a DTI ratio that you need to meet to be approved.
• Down payment: Borrowers who can raise down payments of 20% or higher are considered more creditworthy and may qualify for lower APR rates.

Keep in mind that mortgage requirements may vary depending on the type of loan and the lender. For instance, VA or USDA loans do not require a down payment.

The type of mortgage you choose will impact your down payment costs. For instance, conventional loans require borrowers to have a 20% down payment, while VA and USDA home loans do not require any down payment for eligible homebuyers.

There are also low-down-payment mortgage options where you can get a mortgage with a down payment starting at 3.5%. Keep in mind that the down payment ultimately impacts the cost of your loan and will impact your APR rates as well as monthly payments. Homebuyers who put up a larger down payment qualify for lower mortgage rates and lower monthly payments.

Depending on the type of mortgage, you might be required to get private mortgage insurance (PMI) to protect the lender in case you default on payments. Here’s how mortgage insurance works for the different types of loans:

• Conventional loans: Mortgage insurance is required if the down payment is less than 20%.
• FHA loans: These require mortgage insurance. Mortgage insurance rates will vary depending on the term of the loan, with shorter terms incurring lower mortgage insurance premiums.
• VA loans: These loans do not require mortgage insurance.
• USDA loans: Loans from the USDA do not require mortgage insurance. However, an annual guarantee fee is charged.

Down payment and closing costs can be prohibitive for potential homebuyers, but Kentucky has several homebuyer assistance programs that you can take advantage of, including:

• Regular DAP: If you are a first-time homebuyer in Kentucky, you may qualify for regular DAP. This program is for homes where the purchase price is up to $349,525 with Secondary Market. This program offers loans of up to $7,500 repayable over a 10-year term at 3.75%.
• Affordable DAP: for borrowers who meet the specified DAP income limits, Kentucky Housing Corporation (KFC) offers affordable DAP. This program offers loans of up to $7,500 repayable over a 10-year term at 1%.
• Louisville Metro Down Payment Assistance Program: Low to middle-income homebuyers looking to buy a home in Louisville may qualify for this program, which is offered in the form of a partially forgivable loan with 0% interest. This program only offers assistance up to 20% of the purchase price.

Before a mortgage lender can approve your application, you will be required to provide personal and financial information. This means it's important to have the following documents at hand when applying for your home loan:

• Driver's license
• Social Security card
• Current pay stubs
• Three years of tax returns with W-2s
• Checking/savings account statements

Ask your preferred lender for their specific application requirements. Depending on your background, you might also be required to provide other documents. For example, if you are self-employed, you may need to provide profit and loss statements instead of pay stubs.

When buying a home, having a pre-approval letter is important since it shows the seller that you are creditworthy. On average, once you submit all the required application documents, your lender will give you a pre-approval letter in 10 days if you are approved for a home loan.

Keep in mind that pre-approval letters have a validity period that typically ranges between 30 to 90 days. Once the validity period expires, you will need to apply for another pre-approval letter from the lender. Because of this, it is important to only apply for pre-approval when you are ready to buy a home.

A pre-approval letter is a commitment from a lender to loan you a certain amount. The lender will issue you with this letter once they have reviewed your mortgage application and confirmed that you qualify to borrow a certain amount.

The pre-approval letter will typically specify the following:

• Loan amount
• Loan term
• Monthly payments
• Interest rate

Homebuyers can get more than one pre-approval letter from different lenders. This can help you compare your mortgage rates and options so that you can find the best option. However, pre-approvals require hard credit checks, so they may impact your credit score.

Always check the validity of your pre-approval letter. Once it expires, you need to reapply, which may alter your mortgage rates and terms on reapplication.

Most states, including Kentucky, require home inspectors to be licensed and registered. A thorough home inspection can save you money down the line if the home has serious flaws. If you are not sure where to get a reputable home inspector, your real estate agent can recommend one.

A professional home inspector will ensure that the following features of the property have been thoroughly checked:

• Roof
• Foundation
• Heating and cooling systems
• Electrical system
• Plumbing system
• Windows and doors
• Surrounding grounds
• Attic and basement
• Major appliances

Kentucky state laws require sellers to disclose any flaws or defects when selling a property. However, it is still important for the buyer to get a home inspection done since the disclosure may not reveal everything. There are no special inspection regulations that apply in Kentucky, but keep in mind that specific cities and counties may have their own regulations.

Work with your real estate agent to find out if any specific house inspections are mandated in your particular location. Doing so can save you money in the long run since you won't accidentally overlook any potential issues.

Before you can close on your mortgage loan, a home appraisal will be done. The mortgage lender conducts a home appraisal to verify the value of the property before they can finance your mortgage. This is done to determine the actual value of the home, which is not always equal to the listing price. Appraisals are important for the lender to ensure that the homebuyer does not overborrow.

Home appraisals will consider factors like the square footage of the home as well as the current market trends. Once the appraiser is done, they will provide a written report on the appraised value of the home.

As part of the closing process, there are certain documents that you will need to sign. It is important to review all the paperwork carefully before signing to verify all the details and avoid missing important terms.

• The final loan application: You will be required to sign the original loan application to confirm that all your details are correct.
• The mortgage note: This document specifies the mortgage amount, interest, payment dates and terms.
• The property deed: This deed details everything about the property and transfers ownership to the buyer.
• The closing disclosure: this document indicates the terms of your mortgage. The lender is required to provide the closing disclosure at least three business days before you close so that you can review the terms.

One of the major expenses in buying a home are the closing costs. These costs make up about 2% to 5% of the total purchase price. Some of the closing costs you need to be aware of as a buyer may include:

• Origination fees: Some lenders charge a percentage of the loan amount as origination fees for their loans.
• Escrow: These include costs such as property tax, homeowner’s insurance and more.
• Home inspection charges: You need to cover the cost of a professional home inspection.
• Title search charges: You need to pay for the costs of the title search, which ensures that the property is rightfully in your name.
• Lender fees: You need to cover the lender fees, which include appraisal fees.
• Third-party fees: As the homebuyer, you will also incur other third-party costs, including inspection fees, attorney fees and more.

Buying a home is one of the largest investments you will make, so it pays to be prudent. Following a systematic process that includes identifying the best location, preparing a down payment, getting pre-approval and arranging a home inspection will help you make the best choices before closing your mortgage. Working with your realtor every step of the way will help make the process easier.

Once you receive your mortgage funds, make sure that you are aware of your payment due dates. Setting up automatic payments is a good idea if you want to ensure that you make your payments on time.