With Kentucky’s high poverty rate, homeownership can make the difference between those whose housing costs are disproportionately burdensome, and those who are building wealth and financial stability: households that rent are more likely to pay more of their income for housing.. Especially relevant for Kentucky households hoping to gain a foothold as homeowners, this guide will help walk you through the steps you need to take to become one of Kentucky’s homeowners.

1

What Are Kentucky’s Mortgage Rates?

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Mortgage rates can vary from one borrower to the next, depending on financials and credit ratings. However, location can make a difference, as well. Not only will a homebuyer in Kentucky see slightly different interest rates than in other states, but those rates can vary from one city to the next. Kentucky’s rates fall within the national average, but factors such as local economies and the performance of the stock market can change rates from day to day.

Learn more about factors that drive mortgage rates.

2

First-Time Homebuyer? How to Find Assistance in Kentucky

Throughout the economic crisis, the Kentucky Housing Corporation (KHC) worked with the federal government to help Kentucky residents purchase homes. One of KHC’s initiatives was the Unemployment Bridge Program (UBP), which was designed to assist homeowners in the state who became involuntarily unemployed. UBP helped these homeowners avoid foreclosure through a five-year forgivable loan that provided up to $15,000 in financial assistance or 12 months of mortgage payments.

In addition to the UBP, the housing agency also provides help through zero-interest loans, homebuyer tax credits, and housing counseling and education. First-time homebuyers can benefit from the Hardest Hit Fund (HHF), which provides zero-interest loans. Applicants must meet secondary market income and buying limits and homes for purchase must be located in Christian, Hardin, Jefferson, or Kenton counties.

“As far as KHC’s investments in Kentucky homeowners, in fiscal year 2015, we financed $256 million in home loans, helping 2,224 new homeowners,” says Charla Jackson Peter, managing director of communications and marketing services for KHC.  Four thousand and twenty eight homeowners received housing counseling so they could learn more about the importance of good credit, the importance of owning a home, and information that would help them protect their investment of homeownership. More information on this can be found in KHC’s 2015 Impact Report.

Financial Assistance for First-Time Homebuyers in Kentucky

The below tool will help first-time homebuyers find the best resources in the Bluegrass State.

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Kentucky’s Housing Counselors

3

Home Affordability for Kentucky Buyers

Kentucky’s home prices are below the national cost-of-living average, with median home prices at $125,100. As rent costs rise nationwide, it can benefit some residents to take advantage of the homebuying resources available to help them move from renter to homeowner. Since the housing market remained fairly steady throughout the crisis, the state hasn’t seen the same instability in home sales as happened in other states. However, as foreclosure rates decline and home sales continue to increase, buyers are seeing an increase in home prices. The unemployment rate has also dropped, which traditionally drives more homebuyers to begin searching for a new home. As builders work hard to keep up with the demand, buyers could find that they need to be prequalified before placing a contract on a house to avoid losing to another buyer.


How Mortgage Rates and Home Prices Impact Monthly Payments in Kentucky

Metro Area Estimated Monthly Mortgage Payment* Q1 2016 (Change from Previous Year) 2015 Median Home Price 2014 2013
Bowling Green $668 $142,100 (+1.50%) $147,400 $138,800 $134,100
Cincinnati-Middletown $648 $137,800 (+2.10%) $145,400 $140,600 $135,500
Lexington-Fayette $688 $146,300 (+3.60%) $148,100 $144,000 $143,800
Louisville $696 $148,100 (+5.00%) $154,500 $142,800 $139,500

Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today’s rates.

4

Find Out How Much You Can Borrow in Kentucky

Loan limits vary by area and home type, but in Kentucky, FHA loans for single-family units are limited to $271,050. Conventional loan limits are much higher, at $417,000. Since homes in Kentucky sell for lower than other areas, homebuyers at most levels are likely to find a home within that range. Lenders and government agencies use cost-of-living metrics to determine mortgage caps in specific areas in order to protect lenders without preventing homeowners from getting the financial assistance they need to make a purchase.

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5

Experts Weigh In: Buying a Home in Kentucky

Charla Jackson Peter

Charla Jackson Peter is the managing director of communications and marketing services for Kentucky Housing Corporation.

Steve Stevens

Steve Stevens was named CEO of the Kentucky Association of REALTORS® in May 2016.

What would you tell homebuyers about the current market for buying a home in the state?

Peter

It is currently a great time to purchase a home in Kentucky and there are options making homeownership more affordable. Often, purchasing a home is less expensive than renting. Plus, buyers have an opportunity to take advantage of down payment assistance through Kentucky Housing Corporation and its network of lending partners across the state. The full list of approved lenders is located on KHC’s website at www.kyhousing.org, under ‘Home Buyers.’

Stevens

In Kentucky, with homes being affordable and the cost of living being lower than the national average, you can get more home for your money, especially if you are relocating from a large metropolitan area with a high cost of living. Also, with rents rising quickly, the cost of ownership is, in many cases, cheaper than the cost of renting. Throughout the state, there are many different areas where you could choose to live – with metro areas, rural farmland and many lakes and rivers, the selection is diverse.

How has Kentucky’s housing market fared both before and after the housing crisis?

Peter

The housing marketing in Kentucky was more stable than other states and was more mildly affected during the crisis in comparison to other states such as California, Florida, Michigan, Arizona, Nevada, and even Ohio. There is still a gap, however. Incomes have increased 23 percent over the past 10 years, but rents have increased 27 percent, increasing the affordability gap.

Stevens

Kentucky has, over the past decade, remained relatively stable in terms of median home prices. Even when the national crisis hit, Kentucky, as a whole, never experienced a drop in median prices. The number of homes during the years of the crisis (2006 through 2011) dipped slightly at around 3 percent to 4 percent but rebounded. Even with record-setting numbers over the course of 2015, Kentucky’s median home price is still just over half of the national median home price, making the state extremely affordable when compared to many parts of the country.

Have you noticed any economic trends throughout your state?

Peter

As the state housing finance agency, we have seen a boost in home sales this year in comparison to last spring. Foreclosures have also been steadily declining. Current information released about Kentucky’s unemployment rate shows 5 percent in April. Kentucky’s largest urban center is Louisville, which showed 4.5 percent.

Stevens

In Kentucky, there are a few metro areas while the majority of the state remains rural. This dynamic buffers Kentucky from the ups and downs seen in the national housing market. The metro areas, while they do experience more fluctuations in home price and homes sold than the rural areas, have remained very attractive in comparison to other cities around the country, before, during and after the housing crisis. Most of the large areas in the state are seeing inventory shortages, however, home sales continue to rise and prices are strong.

6

Don’t Forget Closing Costs in Kentucky

On a $200,000 loan, Kentucky homebuyers will pay just under $1,800 in closing costs, which is lower on average than costs in other states. There are varying factors that determine these costs, including third-party fees that include attorney fees and costs to get the appraisals and certifications required at closing.

Before beginning the home-buying process, Kentucky residents should be aware of the costs they’ll pay in their area of the state, as well as what each cost means. These charges should be provided to you in detail at closing, but this guide will give you an idea of what each of these charges mean. The government charges fees on every home loan, but there are also numerous third-party fees that are part of every closing. In some cases, you may be able to purchase discount points to earn a lower interest rate, which can save you significantly over the course of the loan.

Average Closing Costs in the Bluegrass State

Average Origination
Fees
$1,060
Average Third-Party
Fees
$737
Average Total Closing
Costs
$1,797

Source: Bankrate’s 2015 survey of closing costs.

Refinancing a Mortgage in Kentucky

As with the rest of the country, refinancing has become a common practice across Kentucky. Lenders like Joshua Price, sales manager at Envoy Mortgage, have seen a spike in refinancing in 2016, thanks in large part to low interest rate and a thriving housing market.

“With low supply of homes on the market, many current homeowners can’t find another home in their ideal price range,” says Price. “Therefore, a large number of homeowners are refinancing to save money or improve their home in the interim until they are ready to buy.  We see many clients benefiting from a refinance regardless of the amount of equity in their home.”

For some Kentucky homebuyers, refinancing might be the best option. They’ll continue to gain equity in their house while also waiting until the housing supply improves in the state. While homes are selling quickly, it can be difficult for a homeowner to find the right house in many of Kentucky’s metropolitan areas. This has many residents choosing to refinance for a lower mortgage payment.

Another reason Kentucky residents choose to refinance is to get the money necessary to pay for expenses like a college education or dream vacation. Some Kentucky owners are even using the extra money to remodel their own homes, which make it feel as though they’ve breathed new life into an existing home.

Homebuying Resources for Kentucky Residents

Kentucky Housing Corporation

Learn more about loan programs for first-time and subsequent homebuyers, find training courses and counseling opportunities, and download a home buying guide.

REACH, Inc.

REACH (Resources Education and Assistance for Community Housing) exists to help low- to moderate-income Kentucky residents with both budget and credit education to help them become self-sufficient homeowners.

HUD Community Block Grants

Through this program, HUD provides entire communities with the resources they need to grow and thrive.

Louisville Homebuyer Assistance Program

This program equips credit-approved homebuyers with less than $20,000 in assets purchase a home in the Louisville metropolitan area. Both first-time and subsequent homeowners can apply.

Find a REALTOR®

The Kentucky Association of REALTORS® offers a database of agents throughout the state of Kentucky, segmented by area.

Kentucky Housing Corporation Approved Lenders

Search for a lender that has been approved by the state housing agency. You can also learn income limits and purchase price limits, as well as locate educational opportunities through this site.

Mortgage Bankers Association of Kentucky

Find a mortgage lender by searching the Mortgage Bankers Association’s database of members.

HUD-Approved Housing Counseling Agencies

This site lists all of the counseling opportunities available throughout Kentucky, along with information on the types of counseling offered by each.

Covington Homebuyer Assistance Loans

These zero-interest forgivable loans are available for qualifying low-income homebuyers in the Covington area.

City of Lexington Housing Programs

The City of Kentucky offers three types of programs to help homebuyers in the area, including a first-time homebuyer program that offers non-repayable mortgage subsidies and zero percent to 2 percent loans to low- and moderate-income first-time homebuyers.

REBOUND, Inc.

REBOUND offers low-cost homes throughout the Louisville area, as well as down payment assistance to homebuyers who qualify.

Resources by City

This list from the Kentucky Housing Corporation details assistance available by each city within the state, including permanent and temporary housing assistance and emergency shelters.