First-Time Homebuyers in Kentucky Need to Know These 7 Facts
Kentuckians are not immune to the housing unaffordability problems present across the United States. With real estate prices and interest rates hovering near all-time and multi decade highs, respectively, home affordability is a huge issue, particularly for those looking to become first-time buyers.
These extenuating circumstances make homeownership harder to achieve, but not impossible.
Kentucky's first-time homebuyers should keep these seven facts in mind in order to help make the progress more navigable.
7 facts for KY homebuyers to consider
These facts are intended to help you become a homeowner with less friction, difficulty, and cost.
1. KY has 2 assistance programs for 1st time buyers.
Kentucky, like many states across the country, does offer a couple of special programs for residents to take advantage of:
KHC Conventional Preferred
KHC Conventional Preferred Plus 80
These programs are offered by The Kentucky Housing Corporation, also known as KHC.
KHC Conventional Preferred
KHC Conventional Preferred offers qualified buyers a 30-year home loan with a fixed interest rate. Open to first-time and repeat buyers, the program does not carry minimum borrower contribution or reserve requirements.
You will be required to pay for mortgage insurance, however, though it comes at reduced rates from what you will find with other mortgage lenders across the state.
Certain KHC participating lenders may mandate that you complete a first-time homebuyer education course.
Eligible borrowers will:
Provide a 3% down payment
Have a credit score of at least 660
Have a debt-to-income ratio below 50% (40% for certain loans)
Buy an eligible single-family home, townhouse, condo, or other home, so long as it is attached to a permanent foundation
Buy a home as a primary residence
Meet income requirements and purchase price limits ($349,525)
KHC Conventional Preferred Plus 80
KHC offers another option to first-time (and repeat) buyers, the Conventional Preferred Plus 80 program. The program works the same as the regular program, except the county income thresholds are higher, meaning more buyers will be able to participate.
These limits extend from $131,600 to $173,425 and will pertain only to the loan applicant.
2. The average Kentucky home is worth $200,645.
According to Zillow, the average home in Kentucky is slightly over $200,000, more affordable than many states across the country, but still up 3.7% in the last year and nearly 70% since the Fall of 2016.
This barometer can help you to determine where you fit in the local real estate market. It is also important to consider that in a state as large as The Bluegrass State, the housing market can vary greatly.
For instance, the average home in Bradfordsville is about $156,000, while Springfield is a pricier $209,000.
Particularly in the world of remote work, moving even one county over from your ideal location may be able to save you tens of thousands of dollars on your home purchase. You may even be able to afford additional square footage or features like swimming pools.
3. Tax benefits can make a home more affordable.
While homeownership is undoubtedly expensive, there are ways to recoup or save on some of these expenses come tax time. Buyers across Kentucky may be able to reap tax benefits in three different ways.
KHC Homebuyer Tax Credit
First is the Kentucky Housing Corporation Homebuyer Tax Credit, which allows eligible homeowners to receive a dollar-for-dollar credit on 20% of the interest paid on their home loan.
To be eligible, you should:
Have a 30-year fixed rate mortgage (no ARMs or adjustable loans)
Meet income and purchase price limits, which vary by county
Be current on your monthly payments
Prospective program participants should be aware of a recapture tax, though, which will could kick in if you:
Sell your home less than 9 years after closing
Sell your home for a capital gain
Earn at least 5% pay raises in a year
The Internal Revenue Service (IRS) also offers a number of tax deductions designed to make homeownership more affordable. Among these benefits include the potential to deduct mortgage interest and property taxes.
Deducting mortgage interest
Homeowners in Kentucky and around the country can deduct interest on mortgage balances of up to $750,000 if married and filing jointly ($375,000 if filing separately).
This deduction will allow you to subtract this interest from their taxable income.
Deducting property taxes
Your local real estate taxes are also deductible at the federal level, to the magnitude of $10,000 if married and filing jointly (else $5,000).
This deduction applies to both your annual property tax assessment on your home as well as any taxes you may have paid upon closing during the sale or purchase of your new home.
4. Kentucky also offers down payment assistance.
In addition to the first-time homebuyer programs I mentioned a minute ago, the Kentucky Housing Corporation (KHC) also offers a down payment assistance program to buyers that qualify.
Kentucky down payment assistance is available to buyers buying homes with a purchase price up to $481,176. Assistance is provided as a loan of up to $10,000, which you can repay over the course of ten years at a below market rate of 3.75%.
The program is available to recipients of a KHC first-mortgage home loan, and no liquid asset review is required to participate.
5. Buyers have multiple different loans to consider.
For whatever reason, first-time homebuyers oftentimes think that a Conventional home loan is their only option to finance their home purchase. But in reality, buyers can and should evaluate other options, like loans from the following programs.
Please note that these programs are available through a variety of mortgage lenders that underwrite business across Kentucky.
Federal Housing Administration (FHA): FHA loans are open to borrowers with credit scores as low as the mid 500s, who can also buy homes with down payments as low as 3.5% of the home's purchase price. FHA loans do require pricy mortgage insurance premiums, however.
United States Department of Agriculture (USDA): The USDA also offers a home loan program that first-time buyers can take advantage of. Open to lower and moderate-income Americans, the program is available to buyers in rural areas.
Veterans' Affairs (VA): Veterans, servicemembers, and surviving military spouses may consider a mortgage through the Department of Veterans' Affairs. Offering below market interest rates and other benefits, you could save money.
6. KY property taxes rank 23rd in the nation.
In a closing cost saving measure, it is worth noting that Kentucky real estate taxes are among the most affordable in the nation, with an average annual property tax of just $1,886.
And since you'll likely need to pay a number of months of closing costs upon closing, the fact that KY property tax rates are low mean that closing costs can be affordable too.
Of course, as is the case with home prices, some areas carry higher property tax rates than others.
For example, Fayette County has a median property tax rate of 1.1% and payment of $2,202, while Letcher County has a median property tax rate of 0.89% and tax bill of $489.
7. Homeowners insurance averages $2,000 per year.
Though you likely will appreciate lower property tax rates, this will be offset somewhat by above average homeowners insurance rates.
$250,000 in dwelling coverage averages:
$2,001 in Bowling Green
$1,904 in Elizabethtown
$2,092 in Hopkinsville
$1,964 in Louisville
Part of the reason for these higher premiums is due to the prevalence of tornadoes, which can cause large amounts of property damage when they occur.
As a prospective home buyer, you should make sure that your policy includes tornado coverage, and if not, consider buying additional coverage that does.
Kentuckians can quickly become overwhelmed by the increased housing costs around the state. But the facts here all provide tips that you can use to buy your first home sooner, and for less money.
Do any of these facts about homeownership in Kentucky surprise you? Tell me which ones in the comments below!
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