How to Buy a House in Kentucky: 6 Steps

Purchasing a house represents a major financial decision, often involving substantial long-term commitments. In Kentucky, the average home value stands at $210,684, which is significantly lower than the national average of $362,481. This difference can make Kentucky an attractive option for prospective homebuyers looking for affordability.

Understanding down payment assistance programs, mortgage types, and state-specific regulations in the Bluegrass State can make your journey toward homeownership smoother. MoneyGeek has compiled pointers to help you navigate the homebuying process in Kentucky, from saving for a down payment and selecting the ideal location to finding the best financing option tailored to your needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Kentucky for the second quarter of 2024 was 1.2%. The homeowner vacancy rate measures the percentage of homes available for sale compared to the total number of homeowner-occupied units. This metric helps assess the housing market's supply and demand dynamics.

A stable homeowner vacancy rate is typically around 2%, allowing homebuyers some choice and flexibility in selecting a home. With Kentucky's rate at 1.2%, it indicates high housing demand for limited inventory. This scenario may lead to increased competition among buyers, potentially driving up home prices. For homebuyers in Kentucky, this means being prepared to act quickly when finding a suitable home and possibly facing higher costs.

Before buying a house in Kentucky, closely examine your financial and credit history. A strong financial profile is beneficial when applying for a mortgage. Lenders evaluate your creditworthiness and financial stability, affecting your loan approval chances and interest rates.

Your credit score plays a pivotal role in determining the mortgage loans and interest rates you qualify for. Lenders view a higher score as a sign of reliability, increasing your chances of securing a reasonable rate. As of the third quarter of 2023, the average credit score in Kentucky stands at 705, according to Experian. This figure provides a benchmark for potential homebuyers in the state.

If your credit score falls into the 'poor' range on the FICO scale, which is below 580, buying a house is still possible, though obtaining mortgage approval may be challenging. Refer to the table below to identify which mortgage type suits your situation based on minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) is a vital tool for lenders to understand how much of your monthly income is dedicated to debt payments. This ratio helps them assess the amount of mortgage debt you can responsibly manage. In Kentucky, the average mortgage debt was $150,430 in the third quarter of 2023, according to Experian. Taking on this additional financial responsibility requires careful evaluation of your current financial obligations.

Monthly debt payments factored into your DTI include mortgages, credit card payments, car loans, and other debts. Use our debt-to-income ratio calculator below to determine your front-end DTI, which focuses on housing-related expenses and your back-end DTI, encompassing all debt payments. This tool will also help you see your total monthly debt obligations.

Buying a house you can't afford is a common mistake that can lead to financial stress. To avoid this, consider using the 28% rule as a guideline. This rule suggests that you should not spend more than 28% of your monthly income on your mortgage payment. By keeping your housing costs within this limit, you can maintain a balanced budget and avoid financial strain.

According to the U.S. Bureau of Labor Statistics, the median annual income in Kentucky as of April 2024 is $43,730. This translates to a gross monthly income of $3,644 before taxes. Applying the 28% rule, a homebuyer should aim for a monthly mortgage payment of no more than $1,020. This approach ensures that housing costs remain manageable and aligned with income levels.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Kentucky.

A down payment is an upfront payment you make when buying a house. It plays a crucial role in securing a mortgage, with 20% often considered the standard amount. This can be a significant obstacle for many homebuyers. In Kentucky, the average home value is $210,684, which means a 20% down payment would be $42,137. For a home valued above average at $220,000, the 20% down payment would be $44,000.

Fortunately, saving up for a 20% down payment is not a requirement. Most mortgage types allow for a lower down payment. Government-backed loans, such as VA loans, require 0% down, while FHA loans require just 3.5%.

Keep in mind that if you put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance (PMI) premium based on your credit score and down payment.

Kentucky offers several down payment assistance programs to help make homeownership possible for many people. These programs aim to ease the financial burden associated with buying a home, allowing more individuals to achieve their homeownership goals. There are down payment assistance programs in Kentucky, provided by the Kentucky Housing Corporation (KHC).

Finding the right location in Kentucky involves considering several key factors. Start by evaluating the average house price in areas you are interested in. Proximity to family, friends, and work or school can significantly impact your daily life, so weigh these aspects carefully. Additionally, assess the availability of public transportation, parks, restaurants, and shopping centers to ensure they meet your lifestyle needs.

The cost of living is another crucial element in your decision-making process. According to the Missouri Economic Research and Information Center (MERIC), Kentucky's cost of living index for the first quarter of 2024 is 92.6, which is below the national average of 100. This suggests that living in Kentucky may be more affordable compared to other states. Consider these essential expenses when evaluating your options:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Kentucky and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Kentucky. They provide the advice you need, manage the paperwork, and offer an expanded list of property options that you might not access on your own. Additionally, they can recommend other service providers such as title companies and inspectors, which can be invaluable as you navigate the home buying process in Kentucky.

When finding a real estate agent, ensure you do your due diligence and interview those with experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

You can also use the license holder search tool from the Kentucky Department of Professional Licensing to find or verify real estate agents in Kentucky.

The homebuying process often involves navigating the complex landscape of mortgage options to find one that fits your budget. In Kentucky, potential homeowners can choose from conventional loans, jumbo loans, FHA loans, VA loans, and USDA loans. You also have the flexibility to select from 10-year, 15-year, 20-year, or 30-year terms and decide whether a fixed-rate mortgage or an adjustable-rate mortgage (ARM) suits your needs best. Choosing the best financing option can improve your chances of approval and help you save money over time.

Interest rates on a mortgage can fluctuate daily due to factors like the type of mortgage, the lender, and the economy. While the interest rate is the cost you pay each year to borrow money, expressed as a percentage, the APR includes both the interest rate and additional costs, such as broker fees and closing costs. This makes the APR a more comprehensive measure of the true cost of borrowing.

As of December 2024, the APR for a 30-year fixed conforming loan in Kentucky is 6.48%, while the APR for a 30-year fixed rate FHA loan is 8.24%. Check the table below to see the current mortgage rates in Kentucky by mortgage type.

Getting pre-approved for a mortgage in Kentucky can streamline your home-buying process. It helps you understand your budget and strengthens your offer when competing for a property. Lenders typically issue a mortgage pre-approval letter, which indicates the amount you qualify for and is usually valid for 60 to 90 days. This letter demonstrates to sellers that you are a serious buyer, potentially giving you an edge in negotiations.

To get pre-approved, you need to submit several documents:

• Proof of income, such as pay stubs or tax returns
• Credit history, including credit reports
• Proof of assets, like bank statements
• Identification, such as a driver's license or passport
• Debt information, including existing loans

It's important to note the differences between mortgage pre-approval and prequalification. Pre-approval involves a detailed financial review, providing a specific loan amount you qualify for. In contrast, prequalification is a preliminary assessment based on self-reported financial information, offering a general idea of what you might afford without a formal commitment from the lender.

Home inspections are an integral part of the homebuying process in Kentucky. They provide a comprehensive assessment of a property's condition, examining areas such as the roof, foundation, electrical systems, plumbing, and HVAC. The inspection report typically includes findings on structural integrity, safety concerns and potential repairs needed. This detailed information helps buyers make informed decisions about their investment.

For example, an inspection might reveal major issues like a failing roof or outdated electrical wiring. Such findings could lead to a lower appraisal value, reflecting the cost of necessary repairs. In some cases, buyers may decide to rescind their offer if the inspection uncovers significant problems that affect the property's value or safety. Understanding these potential outcomes can help buyers navigate the homebuying process more effectively.

Home inspections in Kentucky are regulated by the Kentucky Board of Home Inspectors (KBHI), which operates under the Kentucky Real Estate Authority. Licensed home inspectors must provide a written report summarizing their findings on the property's systems and components that were inspected. This ensures transparency and accountability in the inspection process.

If you're looking for a home inspector in Kentucky, make sure they are licensed. You can verify this using The Board's active license directory. Additionally, consider checking what other clients have said by looking at online reviews and asking for references. These steps can help you find a reliable inspector. Using the search tool can further assist in finding or verifying licensed home inspectors in Kentucky.

Home appraisals are a key component of the homebuying process in Kentucky. They provide an unbiased estimate of a property's market value, which is crucial for both buyers and lenders. In 2023, the median appraisal cost in Kentucky was $500 according to the 2023 Appraisal Survey from the National Association of Realtors (NAR).

While both inspections and appraisals are essential, they serve different purposes. A home appraisal evaluates the property's value, which helps lenders determine the appropriate loan amount. In contrast, a home inspection focuses on the condition of the property, identifying potential issues that may need repair. Lenders require appraisals to ensure the property's value supports the mortgage, thus protecting their investment.

Closing is the final step of buying a house in Kentucky, marking the transfer of ownership and the moment you receive the keys to your new home. Your lender must provide a closing disclosure document three days before the closing meeting. This document outlines your loan terms, projected monthly payments, and closing costs. As closing day approaches, plan a final walk-through with your real estate agent to ensure the property remains in the expected condition.

On closing day, you'll be tasked with reviewing and completing several documents crucial to finalizing your home purchase. These documents ensure that everything is in order before you take ownership of your new home. Here are some of the key documents you'll need to sign:

• Final loan application: This document confirms the details of your loan, including the interest rate and repayment terms. It is your last chance to verify that all the information is accurate before the loan is finalized.
• Deed transfer: This legal document transfers ownership of the property from the seller to you. It is essential for establishing your legal rights to the property.
• Promissory mortgage note: This note is your promise to repay the mortgage lender the amount borrowed to purchase the home. It outlines the terms of repayment, including the schedule and interest rate.
• Homeowners insurance: Homeowners insurance in Kentucky protects your new home against potential risks such as fire, theft, and natural disasters. It provides financial security by covering repair or replacement costs in the event of damage to your property.

Closing costs are fees paid at the end of a real estate transaction. In Kentucky, the average closing costs amount to $2,861, according to NAR. These costs include various fees, which are detailed below:

• Appraisal fee: This fee pays for a professional evaluation of the property's market value to ensure the loan amount matches the home's worth.
• Title search and insurance fee: This covers the cost of verifying the property’s title history and protecting against future claims.
• Escrow deposit: This is an upfront payment held by a third party for property taxes and insurance premiums.
• Prepaid costs: These are advance payments for items like homeowners insurance and property taxes.
• Other closing costs: These may include fees for credit reports, attorney services, and loan origination.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Kentucky can help you achieve homeownership faster.

Buying a house in Kentucky represented a long-term financial commitment. To help you start your homebuyer journey, we answered some frequently asked questions about the process.