Kentucky First-Time Homebuyer FAQ: Everything You Need to Know About Getting a Mortgage in 2025

Table of Contents:

Credit Score Requirements

620-640 Score: Most lenders in Kentucky require a middle credit score in this range for no-money-down loans, including USDA Rural Housing and Kentucky Housing Corporation (KHC) programs with down payment assistance. 580 Score: If you can afford a 3.5% down payment, you might qualify for an FHA loan with a score as low as 580. VA Loans: Typically require a 620 middle score, though VA guidelines technically allow for lower scores in some cases. Rapid Rescore: If your score falls between 580-620, many Kentucky lenders offer rapid rescore services that can help improve your scores within about 30 days, potentially qualifying you for better terms.

For Kentucky first-time homebuyers, your credit score plays a crucial role in determining what mortgage options are available to you. Here’s what you need to know:

  • 620-640 Score: Most lenders in Kentucky require a middle credit score in this range for no-money-down loans, including USDA Rural Housing and Kentucky Housing Corporation (KHC) programs with down payment assistance.
  • 580 Score: If you can afford a 3.5% down payment, you might qualify for an FHA loan with a score as low as 580.
  • VA Loans: Typically require a 620 middle score, though VA guidelines technically allow for lower scores in some cases.
  • Rapid Rescore: If your score falls between 580-620, many Kentucky lenders offer rapid rescore services that can help improve your scores within about 30 days, potentially qualifying you for better terms.

Pro Tip: If your scores are borderline, consider working with your lender on a rapid rescore strategy before applying. Paying down credit card balances and fixing reporting errors can provide a quick boost to your scores.

The Pre-Approval Process

Getting pre-approved for a mortgage in Kentucky is typically a straightforward process:

Cost: Most lenders don’t charge for pre-approval, though you may need to pay for the credit report (typically around $100 for a single borrower).

Timeline: With all documentation ready, the pre-approval process usually takes about 24 hours. Lenders review:

  • Credit reports and scores
  • Income verification
  • Asset documentation
  • Employment history

Automated Underwriting Systems: Your information gets processed through different systems depending on loan type:

  • Fannie Mae, FHA, and VA: Desktop Underwriting (DU)
  • USDA: Guaranteed Underwriting System (GUS)

If you receive an automated approval, this becomes the basis for your pre-approval. However, complex situations (poor credit history, high debt-to-income ratios, or other factors) might require manual underwriting, extending the timeline.

Special Programs for Kentucky Homebuyers

Kentucky offers several programs to make homeownership more accessible:

Kentucky Housing Corporation (KHC) Programs

  • Regular Down Payment Assistance: Loans up to $10,000 with a 3.75% interest rate, repayable over 10 years

Other Available Programs

  • Welcome Home Grant Program: Offers up to $20,000 for eligible buyers and up to $25,000 for military homebuyers to assist with down payment and closing costs
  • Mortgage Credit Certificate (MCC): Provides a tax credit based on mortgage interest paid
  • Louisville Down Payment Assistance Program: For buyers in the Louisville Metro area
  • Federal Programs: FHA, VA, and USDA Rural Housing loans

Did You Know? Kentucky uses the U.S. Department of Housing and Urban Development’s (HUD) definition of a first-time homebuyer. This includes anyone who hasn’t owned a home in the last three years.

Current Mortgage Rates in Kentucky

As of May 2025, current average mortgage rates in Kentucky are:

Loan TypeAverage RateWeekly Change30-Year Fixed6.69%-0.11%15-Year Fixed6.00%-0.23%5/1 ARM6.94%-0.05%

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Rates fluctuate daily, similar to gas prices. The recent Federal Reserve rate cuts in late 2024 have started to impact mortgage rates. However, housing prices remain relatively high in popular Kentucky cities like Louisville and Lexington.

Understanding Closing Costs

When buying a home in Kentucky, you’ll need to budget for these typical closing costs:

  • Good Faith Deposit: Usually under $500, refundable at closing
  • Appraisal Fee: $500-$650, typically paid before closing
  • Home Inspection: $300-$400, optional but recommended
  • Termite Report: About $50, required for VA loans

Additional costs include title insurance, title examination, closing fees, and lender underwriting fees. These can potentially be:

  • Paid by the seller (if negotiated in your purchase contract)
  • Covered by a lender credit
  • Factored into your loan with down payment assistance

The median down payment in Kentucky as of October 2024 was $33,000. However, many first-time buyer programs allow for much lower down payments.

Income Requirements

Qualifying for a mortgage depends on two key debt-to-income (DTI) ratios:

  1. Front-End Ratio: Your new house payment divided by your gross monthly income (typically capped at 31 to32%% on a manual underwritten loan and USDA Mortgage Loans where on an AUS automated approval you can go as high as 45% on FHA, VA, Conventional mortgage loans)
  2. Back-End Ratio: The new house payment plus existing monthly debts is divided by gross monthly income. This is typically capped at 45-50% on USDA, Conventional Loans. You can go higher on VA and FHA loans on the backend. Ratio.
  3. Typically VA will also have a residual income requirement ➡️Read more here about that

Example Calculation

If you earn $3,000 monthly with $400 in existing debt payments:

  • Back-End Calculation: $3,000 × 0.43 = $1,290 maximum total debt; $1,290 – $400 = $890 maximum house payment
  • Front-End Calculation: $3,000 × 0.31 = $930 maximum house payment
  • You would qualify for the lower amount: $890 monthly payment

This calculation example helps determine your maximum affordable mortgage payment.

Rate Lock Information

You can typically lock in your mortgage rate once you have a home under contract. Most Kentucky lenders offer:

  • Free rate locks for up to 90 days, after that you may have to pay for lock fees and extensions to the lender
  • Option to extend the lock for a fee if needed
  • Protection against rate increases during your home buying process

The longer the lock period, the higher the potential cost, as the lender assumes more risk. Since mortgage rates change daily, locking in your rate when you’re ready to proceed can provide peace of mind.

How Long Pre-Approvals Last

Most lenders honor pre-approvals for about 120 days. After that period, they’ll need to:

  • Run a new credit check
  • Request updated pay stubs, 401k, bank statements etc.
  • Review recent bank statements
  • Verify your financial situation hasn’t changed

Keep this timeline in mind when house hunting. If your search extends beyond four months, be prepared to update your pre-approval documents.

10 Essential Mortgage Facts

  1. Mortgage Rates Change Daily: Like stock prices, rates fluctuate throughout the day.
  2. Different Lenders Charge Different Fees: Always shop with at least three lenders to compare rates, points, and closing costs.
  3. Lenders Can Sell Your Loan: After closing, your loan may be transferred to another servicer. This doesn’t affect your mortgage terms, but pay attention to payment instructions.
  4. Middle Credit Score Matters: Lenders use the middle score from the three credit bureaus for loan qualification.
  5. You Can Refinance Anytime: However, make sure it makes financial sense based on your goals.
  6. Mortgages After Foreclosure Are Possible: Waiting periods vary by loan type (2 years for VA, 3 years for FHA, 7 years for conventional).
  7. Good Credit Equals Better Rates: Higher scores give you access to better terms and more lender options.
  8. APR Reflects True Cost: The Annual Percentage Rate includes interest plus fees, showing the actual cost of your loan.
  9. You Can Reduce Closing Costs: Negotiate seller contributions or request lender credits.
  10. Get Pre-Approved First: Know your budget before house hunting to make realistic offers.

Frequently Asked Questions

How much of a down payment do I need in Kentucky?

Down payment requirements vary by loan type:

  • FHA Loans: 3.5% down with a 580+ credit score
  • Conventional Loans: As little as 3% down
  • VA Loans: 0% down for qualified veterans
  • USDA Loans: 0% down for eligible rural properties
  • KHC Programs: As little as 0% down with down payment assistance

What’s the median home price in Kentucky?

As of December 2024, the median home price in Kentucky was $261,300, significantly below the national average, making it a relatively affordable state for first-time buyers.

How long does it take to close on a house in Kentucky?

Most Kentucky home purchases close within 30-45 days after the purchase contract is signed, though this can vary based on loan type, property issues, or financing complexities.

Can I use gift funds for my down payment?

Yes, most loan programs allow you to use gifted money for down payments. The gift must be properly documented with a gift letter from the donor confirming it’s not a loan.

What are typical property taxes in Kentucky?

Kentucky property taxes are lower than the national average, typically ranging from 0.80% to 1.0% of assessed value, though rates vary by county.

Connect With a Kentucky Mortgage Specialist

Ready to start your homebuying journey? Contact our team of Kentucky mortgage specialists today for personalized guidance:

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