Your Guide to Buying a Home in Kentucky

The Buying Process: A Summary

• In the state of Kentucky, real estate closings can be completed by an attorney or a title agency. 
• The title agency or the attorney can prepare documents for closing the purchase. 
• Although you have reached an agreement on price, there are specific details that need to be negotiated. 
• The mortgage (assuming you are using a loan) needs to be finalized. 
• When possible, the closing will take place with both parties at the same table. 
• The entire state of Kentucky is under the base limits for conforming loans. Currently the limits in Kentucky are $647,200 for a single-family home. 

Buying a Home, Phase 1: Negotiating Repairs and Updates

After being pre-qualified for a loan, working with an agent, viewing houses, and making offers, you have finally had an offer accepted! This is a major milestone, but there are still many details to be completed, including disclosures, inspections, and negotiations. 

1. When an offer is accepted, you and the seller will sign a contract, committing both of you to the purchase.
2. Once the contract is signed, you’ll need to deliver “earnest money,” a specified amount that shows your full commitment to the purchase. This will be held in escrow and given to the seller if you back out of the purchase. 
3. The contract is sent to the attorney’s office or title company and they will begin preparing documents for changing the title. 
4. By this point, you should have received disclosures from the seller.  These are simply statements of known problems or expected issues with the home, and may include necessary repairs or maintenance. It could issues such as drainage problems or basement seeping. A standard disclosure form is used in Kentucky. 
5. You’ll now have the opportunity to perform inspections on the home. These may include a general inspection or inspections for specific issues, such as termite or electrical inspections. Inspections must be completed by a specific date that is described in the contract. 
6. Based on the result of the inspections, you may request changes to the contract. The seller can accept or reject the changes, or (more commonly) they can offer a negotiated solution. 
7. You may request a home warranty, which is funded by the seller. This will cover the cost of appliance repair or replacement for a given period, usually about one year. 

Phase 2: The Mortgage Process

You may have been pre-qualified for a loan, but you’ll now need to go through the process of making the loan final and official. 

1. The first step is to complete a formal loan application, which can be done on your own or with the help of a mortgage professional.
2. You will receive a “good faith estimate” from the lender. This is an estimate of the final closing costs for completing the loan. 
3. At some point, the lender will request a variety of documents. These may include: 

• Pay stubs for the past weeks or months. The number of paystubs requested will vary by lender.
• Tax returns for the previous two years or more. 
• Bank statements for all accounts you currently own.
• Loan documents for all of your debts. This may include car loans, student debt, and credit cars. 
• Disclosures on anything that impacts your financial situation, including alimony, child support, and legal judgements. Include this information whether it’s positive or negative.
• Explanation on any credit inquiries over the past weeks or months.
• Information on any large deposits that are outside of your normal income. 
• If you are receiving a cash gift that will be used as a downpayment, you may need to furnish a “gift letter.”
• Repeat or updated information on any of the above. Lenders need as much information as possible to approve the loan, so don’t be surprised if they ask for updated or repetitive information, such as multiple income documents.

1. The lender will eventually render an approval decision. Assuming you are approved, you should receive a loan commitment letter. This letter states their willingness to support your purchase as long as certain conditions are met. A copy of this letter should be sent to the seller or seller’s agent. 
2. Part of the mortgage condition will be an appraisal. If the appraisal comes back with a strong value, the purchase can move forward. However, if the appraisal is low, changes to the contract may be required, such as a change in price or a larger downpayment. 
3. Homeowner’s insurance will need to be ordered at this time. Proof of insurance should be sent to the lender’s office. 

Remember, this process can take a long time. It’s best to start early and gather as much information as possible. Also, avoid any changes to your financial situation, such as new debt or a new job. 

Phase 3: The Final Closing

Now that negotiations are complete and your mortgage is ready, you can move on to the final closing!

1. The attorney or representative from the title company will complete a title search to make sure the title is free and clear of ownership issues.
2. At this time, they will also prepare the paperwork for changing the title to a new owner. 
3. A final cash figure will be calculated. This is the amount you will need to bring to the closing, usually in the form of a cashier’s check. 
4. A final walkthrough will be performed on the house to make sure there is no damage to the property since it was last viewed.
5. You and the seller will now meet together at the same table to sign all documents.
6. You will pay the remaining funds of your downpayment to the attorney or title company. 
7. The transaction will be recorded. This goes on the city records or with a county if the property is in a rural area. 
8. You’ll be given the keys and can now move into your new Kentucky home!

Conforming Loan Limits

Conforming loans are usually the best option for borrowers. This is a large category of mortgage programs that generally includes government-supported loans, such as FHA loans, VA loans, and USDA loans. Loans supported by Fannie Mae and Freddie Mac are also conforming loans. In most cases, a conforming loan has the best terms or qualifying conditions, but you can only borrow so much with these programs. 

The Federal Housing Finance Agency (FHFA) determines conforming limits on a county-by-county system. Most counties are under the base limits, while high-priced areas can have larger conforming limits.

The entire state of Kentucky is under the base limits for conforming loans, which is currently $647,200 for a single-family property. These are the limits from Pike County in the far eastern section of the state to Fulton County, which is as far west as you can go and still be in Kentucky. They also include Boone County in the north, as well as counties along the entire southern border with Tennessee. 

You can use a conforming loan to purchase a multiunit property as well. The limit for a conforming loan on a two-unit property is $828,700, while the limit for a three-unit is $1,001,650. If you want to use a conforming loan to purchase a four-unit property in Kentucky, the limit is $1,244,850.

These limits apply to conforming loans only. There are other options, including Kentucky jumbo loans.

Note: Conforming loan limits change every year and may have gone up. For updated limits, please contact our team.

Kentucky Downpayment Assistance Programs

There are numerous programs available throughout the state of Kentucky. Some are administered by the state government, while others are provided through city or county governments. While it’s best to talk with a knowledgeable professional, here are a few examples of DPA programs in the state of Kentucky…

Statewide Downpayment Support in Kentucky

Kentucky Housing Corporation
There are other statewide options, but the Kentucky Housing Corporation, or “KHC” is one of the largest and best-funded groups for downpayment assistance. Created by the General Assembly of Kentucky, the KHC is now a self-supporting public corporation that has helped 76,000 families since being created in 1972.

This organization offers two specific forms of downpayment assistance

• Regular DAP: Available to numerous buyers in the state of Kentucky, the Regular Downpayment Assistance Program (DAP) can be leveraged on purchases of almost $350,000. The assistance comes as a loan, and buyers can receive up to $7,500 in support. It is repayable over a ten-year term.
• Affordable DAP: If you are under the maximum allowable income, you can utilize KHC’s Affordable DAP, which also provides up to $7,500 in support. The biggest advantage for this program (compared to the “Regular” program) is that the downpayment loan comes with an interest rate of only 1%.

Local DPA Programs for Kentucky Homebuyers

Various cities and counties also provide some form of downpayment assistance. Here is an example of a city-funded DPA program:

Louisville DPA Program
Louisville, the largest city in Kentucky, provides a large downpayment program for low- and middle-income homebuyers. This support comes as a partially-forgivable loan with 0% interest, making it one of the most affordable options in the state. Through this program, buyers can receive up to 20% of the purchase price.

Common Requirements for Kentucky Downpayment Assistance

One of the most common requirements is an income restriction. To utilize most of these programs, you need to be within a certain income threshold, which is usually about $50,000 to $75,000. The Affordable DAP program, as an example, has income limits for each Kentucky county. This can range from $49,360 to as much as $77,920 in places like Grant, Gallatin, Boone, and Kenton counties.

There could also be occupancy requirements that are tied to loan forgiveness. The Louisville program requires that buyers stay in the property for 5 to 15 years to have their loans forgiven. If they stay in the property, as much as half of the loan could be forgiven.

There may be other requirements, such as minimum credit scores or the completion of homeowner education. You may also need to be a first-time homebuyer. For a detailed list of options, as well as requirements for each Kentucky DPA program, contact our staff.