Kentucky offers up to $12,500 in KHC down payment assistance, plus why none of it is ever forgiven and what that means for your monthly budget.

Updated: July 2026 | Source: KYHousing.org (KHC) · Kentucky Dept. of Revenue · FHFA · HUD · Freddie Mac PMMS

Kentucky Home Loans 2026 — Complete Guide

From 3.5% down FHA to $12,500 in state down payment assistance — here is what home buyers in Kentucky can access in 2026.

Kentucky remains one of the more affordable states to buy in, and its down payment assistance genuinely reduces cash to close — even though, unlike many other states, none of it is ever forgiven. This guide covers loan limits, current rates, property tax, and the KHC programs available to general buyers this year.

$281,500

KY median home price (May 2026)

6.55%

Avg. 30-yr conventional rate

$12,500

Max KHC Regular DAP assistance

$541,287

FHA limit — flat in all 120 counties

The number people miss: Unlike housing agencies in many other states, KHC doesn't offer any grant or forgivable option in its down payment assistance — every dollar comes as a repayable second mortgage. It still meaningfully lowers your cash to close, but budget for the added monthly payment rather than expecting any of it to be forgiven over time.

Kentucky Down Payment Assistance — KHC Programs

Kentucky Housing Corporation (KHC) offers down payment and closing cost assistance as a second mortgage, paired with a KHC first mortgage (FHA, VA, USDA, or conventional).

KHC Down Payment Programs

Regular DAPUp to $12,500, 15-yr term, ~4.75% interest

Affordable DAP (lower income)Up to $7,500, 10-yr term, 1% interest

Annual closing cost grantUp to $2,000, first-come first-served, stackable

Regular DAP vs. Affordable DAP: Affordable DAP offers a much lower interest rate (1% vs. roughly 4.75%) but caps at a smaller $7,500, and is specifically designed for lower-income buyers. Regular DAP reaches a higher $12,500 ceiling but carries a rate closer to market. On the $12,500 Regular DAP option, expect a fixed second-mortgage payment of roughly $97 a month added to your regular mortgage.

Stack the closing cost grant if it's available: KHC allocates a separate $2,000 closing cost grant annually on a first-come, first-served basis, and it can generally be combined with either DAP option. Combined with Regular DAP, that can bring total assistance to as much as $14,500 — ask your KHC-approved lender whether current-year funding is still available.

Eligibility & Purchase Price Limit

KHC programs generally require a minimum 620-660 credit score, a maximum 50% debt-to-income ratio, and household income under county-specific limits. The statewide purchase price limit across KHC loans is approximately $510,939.

Confirm your exact county limit and current program terms at KYHousing.org before applying.

Current Rates

Product	Rate	Source
30-yr Conventional	6.55%	Freddie Mac PMMS, week of July 16, 2026
15-yr Fixed	5.93%	Freddie Mac PMMS, week of July 16, 2026
KHC first mortgage	Below market	Confirm current rate with a KHC-approved lender

2026 Loan Limits — Flat Statewide

Kentucky has no FHA or conforming high-cost counties in 2026 — the same limit applies statewide, including Louisville, Lexington, and Bowling Green.

Loan Type	Limit (Statewide, All 120 Counties)
FHA	$541,287
Conventional (Conforming)	$832,750
VA	No county limit for buyers with full entitlement

Confirm current limits at HUD.gov, though Kentucky has held flat statewide limits for several years running.

Property Tax in Kentucky

What Buyers Should Budget For

Statewide average effective rate~0.8%

Louisville/Lexington city overlay~0.9%–1.1% combined

Rural counties~0.7%

Homestead Exemption (65+/disabled)Reduces assessed value; adjusted for inflation periodically

Kentucky's property tax runs close to the national average, with Louisville and Lexington buyers seeing a somewhat higher combined rate once city and county levies stack, while rural counties tend to run lower. The Homestead Exemption is available to homeowners 65 or older, or totally disabled (including veterans with a qualifying service-connected disability), and reduces the assessed value used to calculate the bill by a set dollar amount that the state periodically adjusts for inflation. This is not a full waiver of property tax — it's a reduction in taxable value — but it saves qualifying homeowners several hundred dollars a year depending on their local rate. Confirm current exemption amounts and application deadlines with your county Property Valuation Administrator (PVA).

Pick Your Loan Type

FHA3.5% down, flexible credit ConventionalSkip MIP with 20% down USDA$0 down in eligible areas VA$0 down for veterans

Try the Loan Calculator Compare FHA, Conventional, USDA & VA with Kentucky prices and current rates

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Are you a teacher, nurse, firefighter, police officer, EMT, or veteran? Kentucky may run additional hero-specific loan programs on top of the general KHC options covered here. Browse the Hero Home Loan Programs hub and select Kentucky for profession-specific options.

Frequently Asked Questions

Is any part of KHC's down payment assistance forgivable?

No. Both Regular DAP and Affordable DAP are structured as repayable second mortgages with regular monthly payments — Kentucky doesn't offer a grant or forgivable DPA option the way some other states do.

Should I use Regular DAP or Affordable DAP?

If your income qualifies for Affordable DAP, its 1% interest rate is substantially cheaper than Regular DAP's roughly 4.75%, though it caps lower at $7,500. If you need more than $7,500 or don't meet Affordable DAP's lower income threshold, Regular DAP's $12,500 ceiling is the option.

Is the $2,000 closing cost grant guaranteed to be available?

No. It's allocated annually and distributed first-come, first-served, so availability can run out before the year ends. Ask your KHC-approved lender about current-year funding status before counting on it.

Does Kentucky's homestead exemption eliminate property tax for seniors?

No, it reduces the assessed value used to calculate the bill by a set dollar amount rather than eliminating the tax entirely. The savings amount depends on your local tax rate and the current inflation-adjusted exemption figure.

Bottom Line: Kentucky offers genuinely affordable home prices, flat statewide loan limits, and KHC assistance that meaningfully reduces upfront cash — just plan for the ongoing second-mortgage payment since none of it is forgiven. Ask specifically about the $2,000 closing cost grant, since stacking it with Regular DAP can push total assistance to $14,500.

Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or mortgage advice. Program terms, rates, income limits, and availability change frequently — verify all details directly with official program sources before making any financial decisions. StatewiseFinance is not affiliated with any government agency or lender listed in this post.