Let's take a look at the down payment assistance program from the Kentucky Housing Corporation (KHC). Understanding how helpful it is will help you gauge how much you need to prepare for a down payment.

KHC's Regular DAP offers up to $12,500 in the form of a second mortgage with a fixed interest rate for 15 years, while the Affordable DAP provides up to $7,500 at a low interest rate of 1% for 10 years. FHA, VA, and USDA loans require a credit score of 620 or higher, while conventional loans require a score of 660 or higher.

So, what are the home prices in Lexington? According to Redfin, the median sale price in the Lexington-Fayette area over the last three months is $350,000, which is a 5.7% increase from the previous year. Zillow reports the average home value at around $288,909, which differs somewhat due to the different methods of calculating actual sale prices and estimated values.

How much should you prepare for a down payment? For a $350,000 home calculated at a 30-year fixed rate of 6.6%, putting down 3.5% or $12,250 results in a monthly principal and interest payment of $2,157, while a 20% down payment of $70,000 lowers it to $1,788. Utilizing KHC's grants can help reduce the initial financial burden while still allowing for a down payment of around 5%.

It may also be beneficial to consider whether an FHA loan or a conventional loan is more advantageous. In a market like Lexington's, where homes are around $350,000, if your credit score exceeds 700, the PMI burden for a conventional loan is often not as significant as expected.

Let's also look at property taxes. The average effective tax rate in Kentucky is about 0.74%, which is lower than the national average. For a $350,000 home, the annual property tax would be approximately $2,590, or about $216 per month. Since tax rates can vary by county, it's advisable to check the property tax bill for any listings of interest.

We will also discuss ways to improve your approval rate. If your credit score is above 780, the average 30-year fixed interest rate can drop to 6.59%, but if it's in the 700s, it rises to 6.91%. Keeping the total debt-to-income ratio below 43% and housing costs below 28% is favorable for conventional loan approval.

It's a good idea to get pre-approved before you start looking at homes. Avoid opening new credit cards, changing jobs, or making large transfers until after closing, and have your income documentation, such as pay stubs and tax returns, organized in advance to speed up the review process.

If you are receiving a down payment as a gift from family, be sure to prepare a gift verification letter in advance, and remember that if your bank balance suddenly increases just before closing, you may need to explain the source. It's also wise to set aside 2% to 5% of the loan amount for closing costs.

Closing costs may include the cost of funding an escrow account for property taxes and insurance. Even in areas like Lexington with low property tax rates, initial escrow reserves may require several months' worth, so it's advisable to obtain a closing cost estimate in advance.

If you have student loans, the monthly payment is often included in the DTI calculation. Even during deferment, lenders may estimate a monthly payment based on their own criteria, so it's best to check with your lender beforehand.

In addition to closing costs, keeping a few months' worth of living expenses as reserves can lead to a more stable review process. Lenders will look at not only the down payment but also whether you have extra funds after closing.

In Lexington, there are several school districts preferred by Korean families, but school district boundaries can change frequently, so while you can refer to ratings from GreatSchools or Niche, it's best to verify the assigned school before purchasing. If you are moving from another state, you may find that the property tax burden is lower than in your previous residence, but it's also wise to consider homeowners insurance and other costs.

This article is not investment or legal advice, and it is recommended to consult with lending and tax professionals before finalizing any contracts.