Mortgage Loans and Tips for Kentucky first time home buyers

Are you looking to buy your first house in Kentucky but don’t know where to start or what questions to ask?

I have put together a first time home buyer guide that will walk you through everything you need to know about Kentucky mortgage loans, down payment options, credit score requirements, work history, and essential tips to make your homeownership in Kentucky happen.

Table of Contents

1. Understanding Kentucky Mortgage Loans
2. Down Payment Options for Kentucky First-Time Buyers
3. Strategies for Struggling with Down Payments
4. Kentucky Housing Corporation (KHC) Programs
5. Evaluating Your Budget
6. Steps to Homeownership in Kentucky
7. Tips for First-Time Home Buyers in Kentucky

Understanding Kentucky Mortgage Loans

Kentucky offers various mortgage loan options tailored to first-time home buyers. Let’s break down the most popular choices:

Here’s the information formatted into a summary table:

Loan Type	Minimum Down Payment	Best for
Conventional Loan	3-5%	Strong credit score & down payment of at least 5% with debt to income ratio lower than 45% 720 score or higher preferred -Less demanding on 2 year work history when compared to FHA, VA, USDA
FHA Loan	3.5%	First-time homebuyers-580 credit score with 3.5% down payment-More suited toward buyers with past credit problems. Has loan limits but no income limits and debt to income ratio should be less than 55% on the back-end ratio.
VA Loan	0%	Veterans & eligible service members- no minimum score but 620 is preferred by most VA lenders-No income limits and can be done anywhere. Can have two VA loans active. Debt ratio varies but can go up to a higher dti ratio than USDA, Conventional and FHA loans.
USDA Loan	0%	Rural homebuyers (income limits apply)-640 score or higher for automated approval but can go lower with compensating factors. Debt ratio limited to 45% max on the backend ratio-Ideal for rural home buyer with lower income ($112k) and no money down.
Kentucky Housing Corporation (KHC) Loans	$0	First-time homebuyers with no money down using the $12,500 down payment assistance. 620 minimum score. Income limits apply along with loan limits. Geared toward first time home buyer.

Down Payment Options for Kentucky First-Time Buyers 

Worried about saving for a down payment? Kentucky offers several options to make homeownership more accessible:

1. Zero Down Payment Loans: VA loans, USDA loans, and some KHC programs offer 0% down payment options.
2. Low Down Payment Options: FHA loans require as little as 3.5% down.
3. Down Payment Assistance: KHC offers up to $12,500 in down payment assistance for eligible buyers.
4. First-Time Homebuyer Savings Accounts: Kentucky allows tax-deductible savings accounts for first-time homebuyers.

Strategies for Struggling with Down Payments

If you’re finding it challenging to save for a down payment, consider these additional strategies and programs:

1. Kentucky Housing Corporation (KHC) Down Payment Assistance:
   • Offers up to $12,500 in down payment assistance
   • Can be used with FHA, VA, or Conventional loans
   • Subject to income limits and other eligibility criteria
2. Conventional 97 Loans:
   • Allows for a 3% down payment
   • Requires a credit score of at least 620
   • Designed for first-time homebuyers
3. HomeReady and Home Possible Loans:
   • Fannie Mae and Freddie Mac programs
   • Allow for 3% down payments
   • Flexible income requirements, including rental income
4. Down Payment Assistance Grants:
   • Check with local Kentucky cities and counties for grant programs
   • Some employers offer down payment assistance as a benefit

5. USDA, VA Loans:  
     No money down options for Kentucky borrowers who are veterans or              active duty who qualify for VA loans or USDA loans for rural home buyers   looking to buy a house no money down.

   

How To apply for any of the loan types mentioned, here’s a general guide you can follow based on the loan type:

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Evaluating Your Budget 

Before house hunting, it’s crucial to assess your financial situation:

1. Check Your Credit Score: Kentucky’s average FICO score is around 693. Higher scores qualify for better rates.
2. Calculate Your DTI (Debt-to-Income) Ratio: Aim for 45% or lower. 
3. Determine Your Budget: Use the KHC homeownership calculator to estimate affordability based on Kentucky’s market. 

Steps to Homeownership in Kentucky

1. Check your finances and credit score
2. Get pre-approved for a mortgage
3. Find a local Kentucky real estate agent
4. Research Kentucky neighborhoods and housing markets
5. Start house hunting
6. Make an offer and negotiate
7. Get a home inspection
8. Complete the mortgage process
9. Close on your new Kentucky home

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Kentucky First-Time Home Buyer Programs

Kentucky Housing Corporation (KHC) Programs

The Kentucky Housing Corporation offers several programs designed to help first-time homebuyers achieve their homeownership dreams:

1. Regular KHC Loan Program: Offers competitive interest rates on 30-year fixed-rate FHA, VA, RHS, and Conventional loans.
2. DAP (Down Payment Assistance) Program: Provides up to $12,500 in down payment assistance as a second mortgage with a 15-year term at 4.75%.
3. Homeownership Education: KHC requires all borrowers to complete a free homebuyer education course, which can be done online or in-person for conventional loans and their mortgage insurance requirements

Mortgage Options for Kentucky First-Time Homebuyers

1. FHA Loans

• Insured by the Federal Housing Administration
• Ideal for buyers with lower credit scores (as low as 580) and smaller down payments (as low as 3.5%)
• Down payment of 10% required for credit scores between 500-579
• Mortgage insurance premium (MIP) required

2. VA Loans

• Backed by the Department of Veterans Affairs
• Available to eligible veterans, active-duty service members, and some surviving spouses
• No down payment required
• No private mortgage insurance (PMI)
• Competitive interest rates

3. USDA Loans

• Offered by the U.S. Department of Agriculture
• Designed for rural and some suburban homebuyers
• 100% financing available (no down payment)
• Income limits apply, based on the area’s median income
• Property must be in an eligible rural area

4. Conventional Loans

• Not government-insured
• Typically require higher credit scores
• Down payments can be as low as 3% for some programs
• PMI required for down payments less than 20%

5. Kentucky Housing Corporation (KHC) Programs

• Regular KHC Loan Program: Competitive rates on 30-year fixed-rate loans
• DAP: Up to $12,500 in down payment assistance

Credit Score Requirements

• FHA Loans: Minimum 580 for 3.5% down payment; 500-579 for 10% down payment
• VA Loans: No official minimum, but lenders typically prefer 620+
• USDA Loans: Usually 640+ required, no minimum score but most lenders prefer 620 or higher or 640 to improve your chances of automated approval
• Conventional Loans: Typically 620+, but 740+ for best rates
• KHC Programs: Varies by program, 620 required for government loans backed by FHA, USDA and VA–660 credit score required for conventional loans.

Down Payment Requirements

• FHA: As low as 3.5% with 580+ credit score
• VA: No down payment required
• USDA: No down payment required
• Conventional: As low as 3% for some programs, typically 5-20%
• KHC Programs: Vary, but can offer down payment assistance

Income Limits and Work History Requirements

• USDA: Income cannot exceed 115% of the area median income
• KHC Programs: Income limits vary by county and family size
• Conventional and FHA: No specific income limits, but debt-to-income ratio considered
• Generally, lenders prefer a stable two-year work history
• Recent college graduates may qualify with less work history if entering their field of study
• Self-employed individuals typically need two years of tax returns

Grant Programs

• Kentucky Affordable Housing Trust Fund: Offers grants for down payment and closing costs
• Local programs: Some cities and counties offer additional grant programs
• Federal Home Loan Bank of Cincinnati: Offers various grant programs through member institutions

How to Apply for a Mortgage

1. Choose a lender (local bank, credit union, or mortgage company)
2. Complete a mortgage application (online or in-person)
3. Provide necessary documentation paystubs, bank statements, paystubs, tax returns w-2’s, 401k statement
4. Undergo credit check and income verification
5. Receive pre-approval letter-Usually good for 120 days, then have to repull your credit

Documents Needed for Mortgage Loan Approval

• Government-issued ID
• Social Security number
• Proof of income (pay stubs, W-2s, tax returns)
• Bank statements
• Employment verification
• Rental history (if applicable)
• Gift letter (if using gift funds for down payment)

Pre-Approval Duration and Closing Costs

• Pre-approval typically valid for 120 days, can be renewed if it expires
• Closing costs usually 2-5% of the home’s purchase price-but this can vary greatly from lender to lender and the rate you choose. Sometimes the lender can charge a higher rate and give you a credit to pay your closing costs.
• May include: appraisal fees, title insurance, attorney fees, recording fees, loan origination fees
• Some sellers may agree to pay a portion of closing costs

Required Inspections

• Home Inspection: Recommended but not always required
• Pest Inspection: FHA, USDA and Fannie Mae not required but VA loans require Pest inspection and any issues resolved before closing if evidence of termite or damage. required by lenders
• Radon Inspection: Recommended in Kentucky due to high radon levels in some areas, but not required. Mainly for homes with basements.
• Appraisal: Required by most lenders unless you have a large down payment, great credit score, and low loan to value for a conventional loan. FHA, VA, USDA always require an appraisal on purchase transactions, but on refinances sometimes you don’t have to do an appraisal.

Timeline of Closing Process

1. Offer accepted (Day 1)
2. Home inspection (Within 7-10 days)
3. Appraisal ordered (Within 1 week of accepted offer)-The most lengthy part of the whole process.
4. Title search initiated (Concurrent with appraisal)
5. Underwriting process (5-7 days)
6. Clear to close issued (Around day 30)
7. Final walk-through (1-3 days before closing)
8. Closing day (Usually 30-45 days from offer acceptance)