What to know about Kentucky mortgage rates

Two horses graze in a green pasture surrounded by white fence, trees and blue sky in Kentucky, where the Kentucky state income tax is a flat rate.Image: Two horses graze in a green pasture surrounded by white fence, trees and blue sky in Kentucky, where the Kentucky state income tax is a flat rate.
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Kentucky offers a diverse culture, affordable home prices, and just about every type of bourbon you could ever want. So it’s no surprise that 4.5 million people call the Bluegrass State home.

If you’re searching for a home in Kentucky, remember to shop around and compare mortgage rates. What may seem like a small difference could add up to thousands of dollars over the course of a 15-year or 30-year mortgage.

Mortgage debt in Kentucky

Credit Karma members with mortgages in Kentucky had average mortgage debt of $136,771 in 2020, with an average monthly mortgage payment of $981.

That puts Kentucky below average for both mortgage debt and average monthly mortgage payments compared to Credit Karma members across the U.S. in 2020.

Types of home loans

If you choose to finance your dream home, you might be overwhelmed by the number of mortgage loan options out there. Here are some of the more common mortgage types that Kentucky homeowners may consider.

Conventional loans in Kentucky

Conventional loans are mortgages that aren’t part of government programs. These loans tend to be good for people with solid credit and a down payment of at least 3% to 5%.

Kentucky FHA loans

FHA loans are a good option for first-time homebuyers to explore — particularly if your credit is less than perfect. That’s because you may be able to qualify with credit scores as low as 580 with a 3.5% down payment or 500 with a down payment of 10%. This FICO® score requirement is the FHA minimum standard. In general, additional lender credit score requirements may apply.

The FHA loan limit in 2021 is generally $356,352 for a one-unit property, but it can reach as high as $822,375 depending on where you live.

Every area in Kentucky conforms to the FHA loan limit of $356,362 in 2021.

You can find the exact limit by county on the U.S. Department of Housing and Urban Development website.

VA loans in Kentucky

If you’re an eligible veteran or service member comparing mortgage rates in Kentucky, a VA loan can be attractive — down payments and mortgage insurance aren’t typically required and you may be able to qualify even if you don’t have great credit.

Similar to FHA loans, VA loans are guaranteed by the federal government but typically issued by private lenders.

Conforming loan limits in Kentucky

Conforming loans are a type of home loan that meets certain loan limits set by the Federal Housing Finance Agency. This means they can be bought by Fannie Mae and Freddie Mac, federal-government-sponsored enterprises that guarantee mortgages.

Loans that exceed conforming loan limits are known as jumbo loans. Lenders often consider these loans riskier than conforming loans.

All of Kentucky’s counties have a conforming loan limit of $548,250 in 2021.

First-time homebuyer programs in Kentucky

If you’re hoping to buy your first home, there may be some assistance programs available to you in Kentucky.

  • KHC Conventional Preferred Program — Offered by the Kentucky Housing Corporation (KHC), the Conventional Preferred Program provides a 30-year mortgage with a fixed rate. While you don’t need any reserves, you must earn at or below 80% of the Area Median Income, have a minimum credit score of 660 as well as a 3% down payment, and meet purchase price limits.
  • KHC Conventional Preferred Plus 80 Program — The KHC Conventional Preferred Plus 80 also offers a 30-year fixed-rate mortgage. But unlike the Conventional Preferred, this program requires that you meet secondary income limits, which vary from county to county. These limits range from $113,925 to $149,450. Take note that there may also be purchase price limits for this program.
  • KHC Regular Down Payment Assistance Program — With the KHC Regular Down Payment Assistance Program, you can get a loan of up to $6,000 to help cover your down payment. You’ll have to repay it over 10 years at a 5.5% interest rate. To be eligible, you need to have a KHC first-mortgage and meet the program’s purchase price limits.

Mortgage refinance rates in Kentucky

If you’re thinking about refinancing your mortgage in Kentucky, keep a few things in mind.

  • Break-even cost — Once you know the closing costs for your refinance, you can use any savings on your monthly mortgage payment to calculate how long it will take you to recoup that investment and “break even.”
  • Cash-out refinance — Have you accumulated equity in your home that you’d like to convert to cash? A cash-out refinance lets you refinance your home for more than what you owe and get cash in return. But you’ll owe the full amount plus interest and you’ll end up owning less equity in your home, which means less cash in your pocket if you sell in the future. 
  • Loan term — You also may want to either shorten or extend your loan term. For instance, if you have a 30-year mortgage, you may want to convert it to a 15-year loan. Keep in mind that reducing your term likely means you’re paying more each month — but less in interest over time. Lengthening your loan term may mean you pay less each month, but more interest over the course of the mortgage.

About the author: Anna Baluch is a freelance personal finance writer from Cleveland, Ohio. You can find her work on sites like The Balance, Freedom Debt Relief, LendingTree and RateGenius. Anna has an MBA in marketing from Roosevelt Un… Read more.