Indiana First-Time Homebuyer Guide
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- Home Loans
Known for their Hoosier pride, Indiana residents value their status as homeowners. If you’re thinking about buying your first home in Indiana, there are a number of first-time homebuyer programs you can take advantage of to make your dream more affordable. Read on to learn more about how to buy your first property in the Hoosier State.
Benefits of Being a First-Time Homebuyer in Indiana
Being a first-time homebuyer comes with its own benefits like down payment assistance and loan programs. Other benefits include:
- Help covering closing costs: Indiana’s state program for down payment and closing cost assistance is the Indiana Housing and Community Development Authority. You might qualify for up to 6% in down payment and closing cost assistance as a first-time buyer in Indiana.
- Local programs: Indiana’s cities have comparatively more than average grant and local programs, which can often be combined with other state offers.
- Specialized loan programs: Indiana residents can also use government-backed mortgage options to access loans with lower qualification and credit criteria.
Qualifications for First-Time Homebuyers in Indiana
Indiana, like other states, uses the definition of a first-time homebuyer laid out by the Department of Housing and Urban Development (HUD). Under this definition, you will qualify as a first-time homebuyer if you have not had an ownership interest in a residential property in the last three years.
This definition is only applicable if you’re applying for a state-sponsored down payment assistance program or if you are using one of Indiana’s first-time loan programs. If you have owned a home in the past three years, you are free to purchase another property at any time as long as you can secure funding. However, you will likely not be able to use government-sponsored loan options like a Federal Housing Administration (FHA) loan.
Questions to Ask Before Buying Your First House in Indiana
Buying your house at the right time can help you build home equity faster, come to closing with the right down payment, and choose the right mortgage loan for your unique needs. The following are a few essential questions that you need to ask yourself before deciding to start the homebuying process.
1. What are Your Personal Long-Term Goals?
The first thing to consider when buying a home is your long-term goals and how they relate to your housing needs and wants. Think about your plan for the next five years and imagine where you will be living to pursue your goals. For example, if you just graduated college and you aren’t sure where your permanent career will be, now might not be the ideal time to buy a home. If you’re established in your area and your plan involves staying in one place, buying might be a smart choice.
2. What Is Your Financial Situation?
Consider your monthly income and how much you can reasonably afford to spend on housing per month. Remember that a mortgage loan and homeownership might come with a variety of expenses that you might not pay as a renter, including:
- Private mortgage insurance (PMI): PMI is a type of mortgage insurance you pay on top of your monthly loan if you purchase a home using a Conventional mortgage loan with less than 20% down.
- Homeowner’s insurance: If you’re using a mortgage loan to buy a home, your lender will require that you purchase homeowner’s insurance as a condition of your loan. This insurance compensates you for physical damage done to the structure of your property as well as losses related to natural disasters, theft, and other covered perils.
- Utilities: If you’re currently living in a rental unit, a portion of your utilities might be covered by your landlord. After you purchase a property, you will be responsible for all your utility expenses.
You’ll also need to consider how you will cover the down payment and closing costs associated with purchasing your home, which can be considerable one-time expenses. Use our mortgage calculator to get an idea of whether your current income can finance and support a mortgage loan.
3. What are Your Housing Needs?
As you explore your options with a mortgage calculator, use an online real estate database to explore homes that fit your taste. Consider both current and future housing needs – for example, while you might only need one bedroom now if you’re single, you could want to expand your family in the future. Location is also an important factor, especially if you rely on public transportation as your primary way to move around.
Explore homes currently for sale and see if the estimated mortgage payment fits with your income and budget. If it does, now might be the time to enter the real estate market as a buyer. If not, there may be solutions – for example, bringing a larger down payment to the closing table will lower your monthly payments.
4. What is the Real Estate Market Trend?
In addition to pricing, consider real estate trends in your area. If prices are on a downward trend, you might want to hold off on buying until prices stabilize. Keeping track of how the market is changing over time can also help you estimate future returns in equity, which can be an invaluable tool when planning for retirement.
5. What are Your Mortgage Options?
If you have done the math and buying a home seems to be just a bit out of reach, know that there are a variety of mortgage options available, some of which are particularly beneficial for first-time homebuyers to make the buying process easier. Government-backed loans are one of the most valuable tools you have at your disposal as a first-time buyer because they may allow you to buy a home with a lower down payment or a less-solid credit history.
First-Time Homebuyer Statistics in Indiana
- Average home price in IN: $231,519
- Minimum down payment in IN: 0% (USDA and VA loans)
How to Apply for First-Time Homebuyer Loan Programs in Indiana
While the process of getting your first home loan might seem intimidating, a number of homebuying programs can guide you as a buyer. Here’s how to get started purchasing your first house using a first-time buyer program or loan.
1. Determine Your Budget
Getting an idea of what you can afford in a home is a crucial first step in getting a loan – and determining if now is a beneficial time to buy. Research home prices in your ideal area and use the mortgage calculator linked above to get a rough idea of a reasonable loan amount. If you seem to be in a solid place to take out a loan, you can get a better idea of what you can afford using a preapproval letter.
2. Get Pre-Approved for a First-Time Home Mortgage
The next step in the mortgage process is to get pre-approved for funding. A pre-approval letter gives you a maximum dollar amount that you can borrow in total. This estimate provides you with a budget you can use to shop for a home – and shows both sellers and real estate agents that you are ready and able to buy a home.
You can also use this time to apply for first-time homebuyer programs for financial assistance. The Indiana Housing and Community Development Authority (IHCDA) currently offers the following state assistance programs for first-time buyers.
- First-Place Program: IHCDA’s First-Place Program can provide you with up to 6% in down payment and closing cost assistance.
- Next Home Program: If your income is too high to qualify for the First-Place Program, consider applying for the Next Home Program. This program can provide between 2.5% to 3.5% in down payment assistance.
Individual cities and counties in Indiana may also offer incentives for first-time buyers. Research current programs and get to know your new hometown by exploring your city’s local government online.
3. Hire a Real Estate Agent
Once you have a preapproval letter, you can start shopping for properties. Enlist the services of a local real estate agent, who can help guide your property search and draft your offer letter. When comparing agents, ask about previous experience in your local market as well as professional credentials.
Family members and friends can be great resources to use when considering local agents. You can also explore real estate professionals in your area using NAF Homes*, an affiliate of NAF, which streamlines the process of finding an agent.
4. Start the Search for Your Dream Home
While hunting for the perfect home can be fun, it’s important to keep your wants and needs relative. In most markets, you will need to sacrifice some of your wants to stay within your budget. Be sure to communicate your needs and your budget to your real estate agent, as well as any flexibility that you might have in pricing and funding.
5. Make an Offer
After making a personal connection with your agent, you will have the opportunity to explore properties until you find the perfect match. When it’s time to make an offer, sit down with your agent, who will review local sales data to recommend how much to offer. You and your agent will agree upon a price, terms, contingencies, and other important offer details before they draft and submit your offer letter.
6. Conduct Home Inspection
Once the offer letter is submitted, there are three things that may happen: the home seller can accept the offer, reject it, or make a counteroffer. Work with your real estate agent until you’re able to come to a set of agreeable terms with the seller, then schedule your home inspection.
A home inspection is an important part of the buying process that gives you a more in-depth look at the condition of the home. During the inspection, a real estate professional will take a tour of the home and look for specific problems that need to be repaired. A few days after the inspection, the inspector will send you a report detailing their findings. If the inspection uncovers major problems with the home, your sale could be delayed.
Note that a home inspection is not a replacement for an appraisal required by mortgage companies. During an appraisal, a home value expert called an appraiser assigns an estimate of what the home you’re buying is worth. If the appraisal value comes back lower than the amount that you agreed to pay for the home, your loan is likely to be delayed.
7. Close the Deal and Become a Homeowner
Once the appraisal and home inspection close, the last step is to take over your property and become a homeowner. The closing is the final step in closing the deal on your mortgage loan, and it is where you will sign your last loan paperwork. Be sure to bring a current form of government-issued photo identification and proof of your down payment transfer to keep closing on track.
5 Traditional First-Time Homebuyer Programs in Indiana
As an Indiana resident, you have access to a few unique loan options and first-time homebuyer programs that may be able to help you buy a home with a lower credit score or fewer financial resources.
While Conventional loans are not reserved for first-time buyers specifically, they can be a stronger option for anyone with a more robust credit profile. Conventional mortgage loans have lower average interest rates than government-backed loans and can be used to purchase any type of property. They also feature a lower down payment minimum of 3%, which is less than the minimum for FHA borrowers.
FHA loans are government-backed mortgage loans with insurance from the Federal Housing Authority (FHA). These loans were introduced to help residents with lower income or credit scores to pursue the dream of owning a home. With an FHA loan, you may be able to buy a home with a minimum down payment of 3.5% and a credit score as low as 500 points with some lenders.
VA loans are specialized home loans reserved for members of the military, veterans, and some spouses. A United States Department of Veterans Affairs (VA) loan may allow you to buy a home with 0% down, and credit requirements are flexible as well. To qualify, you will need to receive documentation of the dates that you served, which your local Veterans Administration office can help you with.
USDA loans have insurance from the United States Department of Agriculture (USDA) and can be a unique and valuable tool for Indiana’s many rural residents. When buying a home in a rural or suburban area as defined by the USDA, you may qualify for a loan with 0% down and a credit score as low as 580 for most loans. Unlike most loans, your home will need to meet location requirements to qualify for a USDA loan, and you must not earn more than 115% of the local median income in your area.
Closing Assistance Programs
A variety of cities in Indiana have local closing cost assistance programs to encourage housing development. For example, Indianapolis residents can access a range of grants for restorative housing, while residents of East Chicago may qualify for up to $25,000 in down payment assistance from the city.
What Are the Mortgage Rates in Indiana?
Mortgage rates are the percentage rate that you will pay in interest on your home loan. Mortgage rates change on a daily basis and keeping track of them can help you plan for your budget.
Investing in an Indiana Home
Buying a home in Indiana starts with financial considerations, which a loan calculator can help with. Getting preapproved for a mortgage loan helps you explore your options early, maximizing your chance of approval. As a resident of Indiana, you can access down payment assistance through the Indiana Housing and Community Development Authority, as well as your local city’s online resources.
Ready to get started funding your dream home? Connect with NAF today. One of our Loan Officers will be happy to answer any questions you may have and help you decide which loan might be right for your needs.
Indiana First-Time Homebuyer FAQs
Is there an income limit for first-time homebuyers in Indiana?
The income limit for first-time buyers in Indiana is related to the buyer program you’re using to buy a home. For example, if you’re using a USDA loan to purchase a property, you cannot earn more than 115% of your local median income. If you’re not using a first-time buyers program or applying for assistance, there is no maximum income to buy a new home.
Can a person with low income buy a house in Indiana?
Yes, there are a few state-wide and local resources that individuals with lower incomes in Indiana can use to buy a home. Government-sponsored mortgages like USDA loans and FHA loans were designed with lower income buyers in mind and feature more flexible down payment and credit requirements. Indiana residents also have access to up to 6% in down payment assistance through programs sponsored by the Indiana Housing and Community Development Authority.
How much does a first-time buyer have to put down in Indiana?
Most first-time buyers will need to put down at least 3% in down payment as an Indiana resident. Some government-backed loan options allow you to buy a home with a 0% down payment under certain circumstances or qualifications.
Does Indiana have first-time buyers programs?
Yes, Indiana has two first-time buyers programs for down payment assistance, issued through the Indiana Housing and Community Development Authority. Local governments also sponsor a series of grants and loan options, which may have limited availability depending on funding and approval.
Do you have to pay back down payment assistance in Indiana?
You will have to pay back most forms of down payment assistance currently available through the IHCDA. In most cases, funding is provided as a second mortgage or deferred loan that is due when you sell the home or refinance, though some local programs do focus on offering forgivable grants. Review literature related to the specific down payment assistance program you’re interested in to learn more about repayment requirements.
* NAF Homes, Inc. is an affiliate of New American Funding and does not originate mortgage loans or issue loan commitments. NAF Homes, Inc. is a MI Real Estate Broker #6505431109, Tel. 844-626-1300.
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