This type of loan is administered by KHC in the state of Kentucky. They typically have $12,500 down payment assistance year around, that is in the form of a second mortgage that you pay back over 15 years at a interest rate of 4.75% depending on your income in the household.
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Joel has worked with KHC for 12 of his 20 years in the mortgage lending business. Joel said, “A lot of my clients would not have been able to purchase a home of their own or possibly delayed their purchase due to lack of down payment but with the $6,000 DAP loan program, this gets them into a house sooner and starts their path to homeownership while building equity instead of throwing their money away.”
Kentucky offers several grant programs to help residents achieve their dream of homeownership. These programs provide financial assistance to eligible buyers, making the purchase of a home more affordable. Here’s an overview of the current grant options available to Kentucky homebuyers:
1. Kentucky Housing Corporation (KHC) Down Payment Assistance Program
The KHC offers up to $12,500 in down payment assistance to eligible first-time homebuyers. This program can be used in conjunction with KHC’s first mortgage loans.
Eligibility:
Must be a first-time homebuyer or not have owned a home in the past three years
Meet income and purchase price limits, which vary by county
Complete a homebuyer education course
2. Kentucky Affordable Housing Trust Fund
This program provides funds to create or preserve affordable housing for low-income households. While not a direct grant to homebuyers, it can help create affordable housing opportunities.
3. USDA Rural Development Grant
Although not specific to Kentucky, this federal program is available in many rural areas of the state.
Key features:
Provides loans and grants for low-income individuals in rural areas
Can be used for home purchases or repairs
Income limits and location restrictions apply
4. Louisville Metro Down Payment Assistance Program
Specific to Louisville, this program offers forgivable loans of up to $25,000 to help with down payment and closing costs.
Eligibility:
Must be a first-time homebuyer
Income must be at or below 80% of the area median income
Property must be located within Louisville Metro
5. Lexington Homeownership Assistance Program
This program, specific to Lexington, provides up to $15,000 in down payment and closing cost assistance.
Eligibility:
Must be a first-time homebuyer
Income must be at or below 80% of the area median income
Property must be located within Lexington-Fayette Urban County
6. Individual Development Account (IDA) Program
While not exclusive to homebuying, this program can help prospective homeowners save for a down payment.
Key features:
Provides matching funds for savings (typically $2 for every $1 saved)
Can be used for homeownership, education, or starting a small business
Income and asset limits apply
7. Welcome Home Grant
Feature
Welcome Home Grant
KHC DPA
Type
Grant (no repayment if retained)
Repayable loan (second mortgage)
Amount Typical
Up to ~$20,000*
Up to $12,500
Payback
None if stays 5+ years*
Monthly payments over 15 yrs
Retention/Terms
5-year deed restriction
Standard mortgage second lien
Income Limits
≤80% MRB household
MRB or Secondary Market
Qualifying Income
Household inclusive
Dependent on mortgage product underwriter
First-Time Buyer
Optional
Depends on mortgage product
Access
Through FHLB member lenders
Through KHC-approved lenders
Availability
Seasonal, limited
Ongoing
How to Apply
To apply for these grants, contact the respective program administrators:
For city-specific programs: Contact your local housing authority or visit the city’s official website
Welcome Home Grant
Program is administered through participating FHLB Cincinnati member lenders (banks and credit unions that belong to the FHLB system).
Buyers must contact a participating mortgage lender early and reserve funds once the program opens (often first-come, first-served).
A fully executed purchase contract and signed mortgage application are typically required to reserve funds.
KHC DPA
Must work with a KHC-approved lender; you cannot apply directly to KHC.
The KHC-approved lender will bundle the first mortgage and the DPA second mortgage into one closing transaction.
Implication:
Both programs require lender participation. The Welcome Home Grant is tied to a different funding source (FHLB) than KHC’s internal DPA loan.
Be aware that grant availability and terms may change. Therefore, you should check with the program administrators for the most up-to-date information. Additionally, many of these programs require participants to complete homebuyer education courses. These courses can provide valuable information about the homebuying process.
By taking advantage of these grant programs, Kentucky residents can make their dream of homeownership more attainable. Explore all options. Consult with housing counselors or financial advisors. This will help you determine the best path to homeownership for your specific situation.
Getting Gift Funds for your down payment on a Kentucky FHA Mortgage.
What is the Great Way to do it?
To avoid getting turn down for your Kentucky FHA mortgage loan if you are getting a gift from your mom, dad or another family member, please follow these rules:
The source of the down payment must always show Kentucky FHA gift funds and their source (usually a relative). It cannot be a personal loan or cash.
Common Gift Fund Issues:
Scenario 1 – only gift funds being used in the transaction Gift amount: $5,000
Common submission problem:
Source of down payment submitted as “checking and savings account.”
Asset submitted as “checking account” with the financial institution as “Gift from Relative.”
Correct submission practice:
Source of a down payment should be submitted as an “FHA Gift from a relative for $5,000”
If funds are not yet in the bank account, DU should be submitted as miscellaneous assets, “Gift for $5,000”
Scenario 2 – (gift funds and borrower’s own funds being used in transaction) Gift amount: $5,000
Common submission problem:
Checking account has $7,000 in total – including the gift.
Source of down payment submitted as “checking and savings account.”
Asset submitted as “checking account”:
Financial institution with $7,000 AND
Miscellaneous asset, “Gift from relative of $5,000”
When ran this way, the gift is put through twice and assets are overstated by $5,000.
Correct submission practice:
Source of down payment should be submitted as an “FHA Gift from relative $5000.”
Since the gift fund is already in the Borrower’s bank account, DU should be submitted as “checking or savings” in ABC account in the amount of $7,000. DU will recognize that $5,000 of the $7,000 in the account is from a gift.
Scenario 3 – (gift funds and borrower’s own funds being used in transaction) Gift amount: $5,000Correct submission practice:
Checking account currently has $2,000. The $5,000 gift will be wired to the title company.
Source of down payment submitted as “checking and savings account.”
Asset submitted as “checking account:”
The financial institution with $7,000, AND
Miscellaneous asset, “Gift from relative of $5,000.”
Correct submission practice:
Source of down payment should be run as “FHA Gift from relative $5,000.”
Since gift funds will be provided to the title company and not the borrower:
DU should be submitted as checking or savings in ABC account in the amount of $2,000, AND
Does FHA Restrict down payment requirements on Identity of Interest Transactions?
The 85 percent maximum LTV restriction does not apply for Kentucky FHA Loans in regards to FHA Identity-of-Interest transactions under the following circumstances:
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FAMILY MEMBER TRANSACTIONS• the principal residence of another family member; or a property owned by another family member in which the borrower has been a tenant for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.
BUILDER’S EMPLOYEE PURCHASE• An employee of a builder, who is not a family member, purchases one of the builder’s new houses or models as a principal residence.
CORPORATE TRANSFER • A corporation transfers an employee to another location, purchases the employee’s house, and sells the house to another employee.
TENANT PURCHASE• the current tenant purchases the property where the tenant has rented the property for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
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▶ Click to watch on YouTube: The Best Kentucky Mortgage Loan Options When Looking for your first house in Kentucky Kentucky First-time Home Buyer Programs👀💯👇‼
Kentucky Mortgage Requirements for FHA, VA, USDA and Fannie Mae
FHA loan in Kentucky you will be confronted with minimum credit score requirements set forth by FHA and the lender. Even though FHA will insure the mortgage loan at a certain credit score, you will see that lenders will create “credit-overlays” to protect their risk and ask for a higher credit score.
So keep in mind when you are getting an FHA lenders will have higher credit score minimums in addition to the FHA Mortgage Insurance program.
For a Kentucky Homebuyer wanting to purchase a home or refinance their existing FHA loan, FHA requires a 3.5% down payment and the borrower must have a 580 FICO Credit Score. If the score is below 580, then you would need 10% down and still qualify on a manual underwrite.
You must have a FICO score of at least 500 to be eligible for a Kentucky FHA loan. If your FICO score is from 500 to 579, your down payment on the loan is 10 percent of the loan.
If your FICO score is 580 or higher, your down payment is only 3.5 percent. If your credit score is less than 580, it may be more cost-effective to take the necessary steps to improve your score before taking out the loan, rather than putting the money into a larger down payment.
How do they get the credit score: There are three main credit bureaus in the US. Equifax, Experian, and Transunion. The three scores vary but should be relatively close as long as the same creditors are reporting to the same bureaus.
You will get a variation in the scores due to all creditors or collection companies don’t report to all three bureaus. This is why they take the mid score. So if you have a 590 Experian, 680 Equifax, and 620 TransUnion, your qualifying credit score would be 620
Based on my experience with lenders that I deal with in Kentucky on FHA loans, most lenders require 620 middle credit score for consideration for loan approval.
How do they get the score: They take the mid score, so if you have a 590 Experian, 680 Equifax, and 620 TransUnion, your qualifying score would be 620.
If your score is below 620, a manual underwrite is where the AUS (Automated Underwriting System) refers your loan to a human being, and they look at the entire file to see if they can overturn and approve the mortgage loan because the Desktop Underwriting Automated Software could not approve you.
With scores below 620, they typically will want to verify your rent history, have no bankruptcies in the last two years, and no foreclosures in the last 3 years.
If you have had any lates since the bankruptcy this will probably result in a denial on a refer manual underwrite file.
Your max house payment will be set at 31% of your gross monthly income, and your new house payment plus the bills you are paying on the credit report cannot be more than 43%.
Typically, on scores below 620 for FHA loans, they will also look at reserves or money you have saved up after the loan is made to try and qualify you. For example, if you have a 401k or savings account that has at least 4 months reserves (take your mortgage payment x 4) and this would equal your reserves. They look at this as a rainy day fund and could help you keep up on your bills if you were unemployed or could not work.
The first thing to keep in mind is that qualifying for a mortgage involves a lot more than just a credit score. While your FICO score is a very important ingredient, it is just one factor. Lenders also look at your income and level of debt, among other things.
A FICO score between 600 and 640 is considered fair to good credit. But keep in mind, this range of credit scores does not guarantee you will qualify for a mortgage, and if you do qualify, it won’t get you the lowest interest rate possible. Still, to buy a home aim for a score of at least 620, recognizing that other factors weigh in the decision and that some banks may require a higher score.
What credit score do you need to get a low rate mortgage?
It uses to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops. To give you an idea, the following table shows current rates by credit score and calculates a monthly principal and interest payment based on a $300,000 loan:
lenders will pull what they call a “tri-merge” credit report which will show three different fico scores from Transunion, Equifax, and Experian. The lenders will throw out the high and low scores and take the “middle score.” For example, if you had a 614, 610, and 629 score from the three main credit bureaus, your qualifying score would be 614.
So if you only have one score, you may not qualify. Lenders will have to pull their own credit report and scores so if you had it ran somewhere else or saw it on a website or credit card you may own, it will not matter to the lender, because they have to use their own credit report and scores.
Lastly, lenders will pull your credit report for free nowadays so this should not be a big deal as long as your scores are high enough.
offered by FHA, VA, USDA, Fannie Mae, and KHC all have their minimum fico score requirements and lenders will create overlays in addition to what the Government agencies will accept, so even if on paper FHA says they will go down to 580 or 500 in some cases on fico scores,
If you have low fico scores it may make sense to check around with different lenders to see what their minimum fico scores are for loans.
The lenders I currently deal with have the following fico cutoffs for credit scores:
As you can see, different government-backed loan programs have different minimum score requirements with most lenders for an FHA, VA, or Fannie Mae loan, and 620 is required for the no down payment programs offered by USDA and KHC in Kentucky for First Time Home Buyers wanting to go no money down.
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By paying down your credit card balances (credit utilization) and having a good pay history (payment history) ,this is the best way to raise your score.
The credit bureaus don’t update immediately, so I would not add to the balance or open any new bills or have any other lender do an inquiry on your credit report while we wait for the scores to hopefully go up in the next 30 days. Try to keep everything status quo and make your payments on time and keep your balances low or lower than what is now reporting on the credit report.
How to improve your credit score!
Pay Every Single Bill on Time, or Early, Every Month
Please understand one thing; paying your bills on time each month is the single most important thing you can do to increase your credit scores.
Depending on the credit bureau, there are 4 or 5 main items that determine everyone’s credit score. Of those items, your history of paying bills makes up about 35% of the score. THIS IS HUGE!
Paying your bills on time shows lenders that you are responsible. It will also spare you from paying late fees whether it is a charge from a credit card or an added fee from your landlord.
Use a calendar, or a phone app, or some other organized system to make sure that you pay your bills on time every single month.
Another big factor in calculating a credit score is the amount of credit card debt. Credit bureaus look at two things when analyzing your credit cards.
First, they look at your available credit limit. Second, they look at the existing balance on each card. From these two figures an available ratio is developed. As the ratio goes higher, so too will your credit score increase.
Here is one simple example. Suppose a person has the following credit cards, corresponding balances, and credit limits
Credit Card
Current Balance
Credit Limit
Chase Visa
$105
$1,000
MarterCard from local bank
$236
$1,500
BP MasterCard
$87
$500
Totals
$428
$3,000
From these numbers, we get the following calculation
$428/$3,000 = 14%
In other words, the person is using 14% of their available credit and they have 86% available credit. The closer that ratio is to 100%, the better the credit score will be.
MAIN TIP: Keep all credit card balances as low as possible.In this particular example, if they had a problem with their car, or needed medical attention or some other emergency, the person would have the money necessary to handle the situation without incurring new debt. This is wise on the consumer’s part and lenders like to see this kind of money management.
Credit Cards Part 2: 1 or 2 is Better Than a Wallet Full
The previous example showed a person that utilized just three credit cards. This is much better than someone who has 5+ credit cards, all with available balances. Why? Lenders do not like to see someone that has the potential to get too far in debt in a short amount of time.
Some people have 5, 10 or more credit cards and they use many of them. This shows a lack of restraint and control. It is much better, and neater, to have only 2 or 3 cards with low rates that handle all of your transactions. A lower number of cards are easier to manage and it does not give a person the temptation to go on a huge shopping spree that could take years to payoff.
MAIN TIP: Try to limit yourself to no more than 2-3 credit cards.
Keep the Good Stuff Right Where it is
Too many people make the mistake of paying off old debts, such as old credit cards, and then closing the account. This is actually a bad idea.
A small part of the credit score is based on the length of time a person has had credit. If you have a couple of credit cards with a long track history of making payments on time and keeping the balance at a manageable level, it is a bad idea to close out the card.
Similarly, if you have been paying on a car or motorcycle for a long time, do not be in a hurry to pay off the balance. Continue to make the payments like clockwork each month.
An account that has a good record will help your scores. An account that has a good record and multiple years of use will have an even better impact on your score.
MAIN TIP: Keep old accounts open if you have a good payment history with them.
Stop Filling Out Credit Applications
Multiple credit inquiries in a short amount of time can really hurt your credit scores. Lenders view the various inquiries as someone that is desperate and possibly on the verge of making a bad financial choice.Too many people make the mistake of getting more credit after they are approved for a loan. For example, if someone is approved for a new credit card, they feel good about their finances and decide to apply for credit with a local furniture store. If they get approved for the new furniture, they may decide to upgrade their car. This requires yet another loan. They are surprised to learn that their credit score has dropped and the interest rate on the new car loan will be much higher. What happened?
If you currently have 2 or 3 credit cards along with either a car loan or a student loan, don’t apply for any more debt. Make sure the payments on your current debt are all up to date and focus on paying them all down.
In a few months of making timely payments your scores should noticeably go up.
MAIN TIP: Limit your new loans as much as possible
Which credit scores do mortgage lenders use to qualify people for a mortgage?
While it’s common knowledge that mortgage lenders use FICO scores, most people with a credit history have three FICO scores, one from each of the three national credit bureaus (Experian, Equifax, and TransUnion).
Which FICO Score is Used for Mortgages
Most lenders determine a borrower’s creditworthiness based on FICO® scores, a Credit Score developed by Fair Isaac Corporation (FICO™). This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk. FICO scores have different names at each of the three major United States credit reporting companies. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:
Equifax Beacon 5.0
Experian/Fair Isaac Risk Model v2
TransUnion FICO Risk Score 04
Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.
Which Score Gets Used?
Since most people have three FICO scores, one from each credit bureau, how do lenders choose which one to use?
For a FICO score to be considered “usable”, it must be based on adequate, concrete information. If there is too little information, or if the information is inaccurate, the FICO score may be deemed unusable for the mortgage underwriting process. Once the underwriter has determined if a score is usable or not, here’s how they decide which score(s) to use for an individual borrower:
If all three scores are different, they use the middle score
If two of the scores are the same, they use that score, regardless of whether the two repeated scores are higher or lower than the third score
Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.
The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation
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