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

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Edited byAshley Jacobs
Contribution by1 expert
Edited byAshley Jacobs
Contribution by1 expert

Updated: August 1, 2023

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The average value of a home in Kentucky is $206,517. This is an average increase of 13.1% compared to median home prices in 2021. Compared to the national average of $357,589, home values in Kentucky tend to be cheaper.

If you are a first-time homebuyer wondering how to buy a house in Kentucky, MoneyGeek analyzed mortgage rates, down payment requirements and other important details. Understanding the homebuying process will help you avoid common pitfalls that can land you in debt when purchasing a home.

Key Takeaways

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The average cost of homes in Kentucky is $206,517, which is significantly lower than the national average of $357,589.

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In Kentucky, you will need a downpayment to buy a home. Depending on the mortgage type and lender, you also need to meet certain income, credit score and debt-to-income ratio requirements.

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Buying a home in Kentucky involves identifying your ideal location, preparing a down payment, getting pre-approved for a mortgage and arranging for a home inspection before closing on your mortgage.

Choose an Ideal Location

Location is one of the major factors that will impact the cost of buying a home in Kentucky. Mortgage rates can also vary depending on location.

You will need to carefully consider the location of the house you want to buy since it impacts factors like neighborhood culture, cost of living, access to amenities and recreational activities.

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WORK WITH A REAL ESTATE AGENT

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
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CALCULATE THE COST OF LIVING

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.

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CONSIDER AFFORDABLE NEIGHBORHOODS

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.

Calculate Mortgage Rates

When you are planning to buy a home in Kentucky, you will have different mortgage options available to you based on your profile. Individual factors like your income, credit history and debt-to-income ratio will impact your mortgage rates.

If you want to get the best options for your profile, MoneyGeek recommends comparing lenders to determine the best deal.

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SEE YOUR MORTGAGE OPTIONS

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:

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.

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USE A MORTGAGE CALCULATOR

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.

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KNOW YOUR QUALIFICATIONS

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.

Prepare Down Payment Requirements

When planning to buy a home in Kentucky, it’s important to consider your down payment options. Down payment requirements vary depending on the type of mortgage and will impact the total cost of your home loan.

Certain home loans don’t require a down payment, while others might require you to put down up to 20%.

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DETERMINE DOWN PAYMENT REQUIREMENTS

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.

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CALCULATE MORTGAGE INSURANCE

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.
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DOWN PAYMENT ASSISTANCE PROGRAMS

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.

Get Pre-Approved for a Mortgage

When planning to buy a home in Kentucky, it is important to get pre-approved for a mortgage. A pre-approval is a commitment from the lender stating they are willing to loan you a specific amount.

A pre-approval is different from a prequalification since the prequalification only indicates that you qualify for a loan. It is not a commitment to lend you the money.

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GATHER NECESSARY DOCUMENTS

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.

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TIME YOUR PRE-APPROVAL

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.

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RECEIVE PRE-APPROVAL LETTER

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.

Conduct a Home Inspection

A home inspection is a vital part of the homebuying process since it ensures that you uncover any significant problems before you purchase the property. If the home inspection uncovers any major flaws, you can opt to forego the property or renegotiate with the seller.

Keep in mind that some lenders will only finance your home if a professional home inspection has been done.

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CONTACT A LICENSED INSPECTOR

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
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FOLLOW KENTUCKY-SPECIFIC INSPECTIONS

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.

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GO THROUGH APPRAISAL

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.

Close Your Mortgage Loan

Closing your mortgage loan is the final step of the homebuying process. It is important to review and understand the terms and rates of your mortgage fully before signing up.

Keep in mind that the closing process comes with certain costs that you will need to meet as the buyer. For low-income homebuyers, down payment assistance programs in Kentucky can help with closing costs.

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SIGN ALL DOCUMENTS

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.
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PAY CLOSING COSTS

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.
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COMPLETE YOUR HOME PURCHASE

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.

Kentucky Homebuying Details

Homebuyers in Kentucky can access different types of mortgages. Down payment assistance programs are also available for low and middle-income individuals who need help affording down payment and closing costs.

It is important to explore all the options available to you carefully since mortgage payments require a long-term commitment.

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Kentucky’s regular DAP program is available to first-time homebuyers in the state for homes of up to $349,525 with Secondary Market.

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For low-income individuals, the Kentucky Housing Corporation (KHC) has an Affordable DAP.

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Depending on your specific location, there may also be special assistance programs available in your area. For instance, homebuyers in Louisville, Kentucky, may qualify for the Louisville Metro Down Payment Assistance Program.

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Don’t forget to look for assistance programs offered by the federal government that can help you afford a home.

Frequently Asked Questions About Buying a Home in Kentucky

If you want to learn more about how to buy a house in Kentucky, MoneyGeek answered frequently asked questions to give you more information.

What are the most important questions to ask when buying a house in Kentucky?
Is buying a house in Kentucky a good idea?
Is it wise to buy a house in Kentucky in 2023?
How much income do I need to buy a house in Kentucky?
How much is property tax in Kentucky?
Which Kentucky city is the cheapest to buy a home?

Experts' Insights About Buying a Home in Kentucky

  1. What are the key factors to consider when buying a house in Kentucky?
  2. Is there a common mistake that first-time buyers make, and how can they avoid it?
Brian Gardner
Brian GardnerAdjunct Instructor in Business Administration at Transylvania University
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