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State Guide

First-Time Homebuyer Programs in Kentucky

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Overview

Kentucky first-time homebuyer assistance is led by Kentucky Housing Corporation (KHC), which runs a paired set of first mortgage and down payment assistance products: KHC's 30-year fixed-rate first mortgage (available with FHA, VA, USDA-RD, or conventional underwriting), the Regular Down Payment Assistance Program for up to $10,000 in repayable assistance, the Affordable Down Payment Assistance Program for deeper subsidy at low interest for buyers at or below 80% of area median income, and the KHC Homebuyer Tax Credit (Mortgage Credit Certificate) for an annual federal tax credit on mortgage interest. In Louisville, the Louisville Metro Down Payment Assistance Program provides up to $10,000 structured as a forgivable second that's fully forgiven after five years of continuous owner occupancy. In Lexington, the Lexington-Fayette Urban County Government Down Payment Assistance Program provides up to $10,000 designed to stack with KHC financing.

Down Payment Assistance Programs

  • KHC First Mortgage (Conventional and Government). KHC's 30-year fixed-rate first mortgage for first-time buyers (and repeat buyers in federally targeted areas), available with FHA, VA, USDA-RD, or conventional underwriting at a competitive rate. KHC's first mortgage is the platform that the Regular and Affordable DPA programs and the KHC Homebuyer Tax Credit attach to, and it's also compatible with Louisville Metro DPA and Lexington-Fayette Urban County Government DPA. Buyers must meet KHC income and purchase price limits and complete a homebuyer education course before closing.
  • KHC Regular Down Payment Assistance Program. Up to $10,000 in down payment and closing cost assistance, structured as a repayable second mortgage at 3.75% interest over a 10-year term. Available paired with KHC's first mortgage and applicable to FHA, VA, USDA, or conventional loans. Because Regular DPA is repayable (not forgivable), the second-mortgage monthly payment is counted in your debt-to-income ratio at qualification - which can lower the first-mortgage amount you qualify for compared to a deferred or forgivable DPA structure. Regular DPA is the broader-eligibility KHC DPA product and does not have the lower income cap that the Affordable DPA program does.
  • KHC Affordable Down Payment Assistance Program. Up to $10,000 in down payment and closing cost assistance at 1% interest over 10 years for income-qualified buyers at or below 80% of area median income. Available paired with KHC's first mortgage. Affordable DPA is the deeper-subsidy KHC DPA product - the lower interest rate produces a smaller second-mortgage monthly payment than Regular DPA, which keeps more first-mortgage qualification power available to lower-income buyers. Income eligibility is strict and is set by KHC at the county level.
  • KHC Homebuyer Tax Credit (Mortgage Credit Certificate). A federal tax credit equal to a percentage of the annual mortgage interest paid (capped at $2,000 per year), available statewide to eligible first-time buyers using KHC financing. The Homebuyer Tax Credit reduces federal income tax liability dollar-for-dollar each year for the life of the loan as long as the home remains the buyer's primary residence, effectively lowering the true cost of homeownership beyond what the interest rate alone reflects. The Homebuyer Tax Credit can be combined with KHC's first mortgage and Regular or Affordable DPA.

Income and Purchase Price Limits

KHC income and purchase price limits vary by county, household size, and whether the property is in a federally targeted area. Income limits generally range from roughly $90,000 in lower-cost Kentucky counties to $115,000+ in Jefferson, Fayette, Kenton, Boone, and Campbell counties for 1-2 person households, with higher limits for 3+ person households and in targeted areas. The Affordable DPA program is capped at 80% of area median income, which is materially lower than the Regular DPA cap. Purchase price limits typically fall in the $300,000-$425,000 range across most of the state. Always confirm current KHC income and purchase price limits with a KHC-approved lender or at kyhousing.org before assuming eligibility.

City Programs Worth Knowing

Louisville and Lexington both run city/metro-level down payment assistance programs designed to stack with KHC financing. Both are income restricted and require HUD-approved homebuyer education before application.

  • Louisville Metro Down Payment Assistance Program. Up to $10,000 in down payment and closing cost assistance for income-qualified first-time buyers purchasing a primary residence inside Louisville Metro limits. Structured as a forgivable second mortgage at 0% interest with no monthly payment - the full balance is forgiven after five years of continuous owner occupancy as the buyer's primary residence. If the home is sold, refinanced, or no longer owner-occupied before the five-year mark, the unforgiven balance becomes due at that time. HUD-approved homebuyer education required, and designed to stack with KHC's first mortgage, Regular or Affordable DPA, and the KHC Homebuyer Tax Credit. Funding cycles can exhaust mid-year - confirm availability with Louisville Metro Develop Louisville / Housing and Community Development before applying.
  • Lexington-Fayette Urban County Government Down Payment Assistance. Up to $10,000 in down payment and closing cost assistance for income-qualified first-time buyers purchasing a primary residence inside Lexington-Fayette Urban County Government (LFUCG) limits. Structured as a deferred or forgivable second mortgage with multi-year continuous owner-occupancy requirements, HUD-approved homebuyer education required, and designed to stack with KHC's first mortgage and DPA programs. Funding cycles can exhaust mid-year - confirm availability with LFUCG's Office of Affordable Housing before applying.

Both city programs run on funding cycles that can exhaust mid-year, and homebuyer education must be completed before application - not after offer acceptance. The city agency review steps extend closing timelines by several weeks beyond a standard KHC-only closing; plan that into the front of your timeline and confirm current funding availability with the administering agency before counting on it in your offer.

FHA Loan Requirements in Kentucky

FHA loans are widely used by Kentucky first-time buyers and are compatible with KHC's first mortgage, Regular DPA, Affordable DPA, the KHC Homebuyer Tax Credit, the Louisville Metro Down Payment Assistance Program, and the Lexington-Fayette Urban County Government Down Payment Assistance Program. Across most of Kentucky, FHA loan limits use the standard single-family ceiling.

Minimum requirements to qualify for an FHA loan in Kentucky:

  • Credit score: 580 or higher for 3.5% down payment with standard FHA. KHC programs typically require 620-640 or higher depending on the product.
  • Down payment: 3.5% of the purchase price with a 580+ credit score. KHC Regular or Affordable DPA (up to $10,000) plus a city DPA program in Louisville or Lexington can fully cover this and most closing costs.
  • Debt-to-income ratio (DTI): Generally 45% or below for KHC (FHA itself allows up to 50% with compensating factors). Note that KHC Regular DPA is repayable and its monthly payment counts toward DTI.
  • Employment history: Two years of consistent employment or verifiable income history.
  • Primary residence: FHA loans require owner occupancy - not eligible for investment properties or vacation homes.
  • Mortgage insurance: FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, plus an annual premium of 0.45% to 1.05%.

FHA loan limits in Kentucky for 2025:

FHA loan limits in Kentucky use the standard single-family limit of $524,225 across most counties, with higher ceilings in the Northern Kentucky counties (Boone, Kenton, Campbell) that follow the Cincinnati MSA limit. Confirm the current limit for your target county at HUD.gov.

Stacking FHA with KHC and city DPA programs:

The most efficient structure for a Louisville first-time buyer is an FHA-backed KHC first mortgage layered with KHC Regular or Affordable DPA (up to $10,000) and the Louisville Metro Down Payment Assistance Program (up to $10,000) - up to roughly $20,000 in combined assistance, with the Louisville Metro portion fully forgivable after five years. In Lexington the comparable stack is KHC plus LFUCG DPA (up to $10,000) for up to roughly $20,000 in combined assistance. Lower-income buyers at or below 80% AMI should ask their lender about Affordable DPA instead of Regular DPA - the 1% interest rate produces a much smaller monthly payment on the second mortgage and preserves more first-mortgage qualification power. A KHC-approved lender experienced with the relevant city program can confirm which combination applies to your income, credit, and target property.

How to Apply

  1. Confirm you have not owned a primary residence in the past three years for KHC first-time buyer programs (waivers apply in federally targeted areas and for qualifying veterans).
  2. Check your credit score - 580 is the FHA minimum for 3.5% down, and KHC typically requires 620-640 or higher depending on the product.
  3. Review current KHC income and purchase price limits for your county at kyhousing.org, and check whether your income is at or below 80% AMI (which opens the door to Affordable DPA at 1% interest).
  4. Decide which KHC DPA product fits your profile: Regular DPA (up to $10,000 at 3.75% over 10 years) for buyers above 80% AMI, or Affordable DPA (up to $10,000 at 1% over 10 years) for buyers at or below 80% AMI. Ask your lender about adding the KHC Homebuyer Tax Credit for an annual federal tax credit on mortgage interest.
  5. If you're buying inside Louisville Metro limits, contact Louisville Metro Develop Louisville / Housing and Community Development to confirm Down Payment Assistance Program eligibility and current funding - and note that the Louisville Metro award is fully forgiven after five years of continuous owner occupancy.
  6. If you're buying inside LFUCG limits, contact the LFUCG Office of Affordable Housing to verify Down Payment Assistance Program availability and current funding.
  7. Complete a HUD-approved homebuyer education course - required by KHC and by both city programs.
  8. Select an approved lender on both the KHC list and (if applicable) the relevant city program's participating lender list.
  9. Apply through your approved lender, who will coordinate the KHC application and the city program submission simultaneously.

FAQ

What's the difference between KHC Regular and Affordable Down Payment Assistance?

Both provide up to $10,000 in down payment and closing cost assistance as a repayable second mortgage over a 10-year term, but Regular DPA carries a 3.75% interest rate and is open to buyers within KHC's standard income limits, while Affordable DPA carries a 1% interest rate and is reserved for buyers at or below 80% of area median income. The lower interest rate on Affordable DPA produces a smaller second-mortgage monthly payment, which keeps more first-mortgage qualification power available to lower-income buyers. If your income qualifies for Affordable, that's almost always the better product; if it doesn't, Regular DPA is still the workhorse statewide option.

How much assistance can I actually get in Louisville or Lexington?

In Louisville, an eligible first-time buyer can layer KHC Regular or Affordable DPA (up to $10,000) with the Louisville Metro Down Payment Assistance Program (up to $10,000) for up to roughly $20,000 in combined assistance - and the Louisville Metro portion is fully forgiven after five years of continuous owner occupancy. In Lexington, the comparable stack is KHC plus LFUCG DPA (up to $10,000) for up to roughly $20,000 in combined assistance. Both city programs are income restricted and run on funding cycles - confirm availability before counting on a specific dollar amount in your offer.

How does Louisville Metro's five-year forgiveness work?

Louisville Metro DPA is structured as a deferred 0% interest second mortgage with no monthly payment. If you live in the home as your primary residence continuously for five years, the full balance is forgiven and you owe nothing. If you sell, refinance, or stop using the home as your primary residence before the five-year mark, the full unforgiven balance becomes due at that time. Because there's no monthly payment, the Louisville Metro award does not count against your debt-to-income ratio at qualification - unlike KHC's Regular DPA, which is a repayable second mortgage with a monthly payment that does count toward DTI.

What credit score do I need for KHC programs?

KHC programs generally require a minimum credit score of 620-640 depending on the specific product and underwriting (FHA, VA, USDA, or conventional). FHA itself allows scores as low as 580 for 3.5% down, but KHC's overlay is higher. If your score is between 580 and 619, a standard FHA loan is still available through non-KHC lenders, but you would not be eligible for KHC's DPA programs or the KHC Homebuyer Tax Credit simultaneously.

Can I use the KHC Homebuyer Tax Credit with Regular or Affordable DPA?

Yes - the KHC Homebuyer Tax Credit (Mortgage Credit Certificate) is available statewide to eligible first-time buyers and can be paired with KHC's first mortgage and either Regular or Affordable DPA. The tax credit delivers an annual federal income tax credit equal to a percentage of the mortgage interest paid that year (capped at $2,000 per year) for the life of the loan, as long as the home remains your primary residence. The tax credit is separate from DPA and does not replace it - the two are designed to work together. Ask your KHC-approved lender to quote the loan both with and without the Homebuyer Tax Credit so you can see the after-tax monthly payment difference.

How long does it take to close using KHC plus a city DPA program?

Expect 45 to 70 days. KHC-only closings track close to standard timelines (35-45 days), but adding the Louisville Metro Down Payment Assistance Program or LFUCG Down Payment Assistance Program adds a city agency review step that extends closing by 15 to 25 days. Homebuyer education should be completed before you start house hunting - not after offer acceptance - to avoid pushing the timeline further.