Buying a home for the first time can be overwhelming, but there are various programs available to help first-time homebuyers in Indiana. MoneyGeek reviewed Indiana first-time homebuyer programs to help you find the best assistance program when buying a home.
What Is a First-Time Homebuyer Program & How Can It Help?
When considering homeownership, it’s important to first understand the expenses involved. A mortgage down payment is one of the initial costs that you will incur as a homebuyer. Most mortgages require a down payment and in most cases, you will qualify for lower interest rates if you can put up a larger down payment.
However, since not all homebuyers can afford up to a 20% down payment, assistance programs can be a convenient way to help you cover the initial costs of a down payment. In Indiana, The Indiana Housing and Community Development Authority (IHCDA) offers various mortgage programs for eligible first-time homebuyers. There are other options available, including USDA, VA, FHA and conventional home loans.
Understanding your options will help you find the best homebuyer program for your needs and profile.
Zero-Down-Payment Loan Programs
For homebuyers who do not have cash upfront, zero-down-payment programs provide access to home loans without requiring a down payment. The main types of zero-down-payment loan programs are USDA and VA loans.
For low- to moderate-income homebuyers in rural areas, USDA home loans offer a zero-down-payment option. USDA home loans are available to borrowers who are purchasing property in an eligible rural area where the population is fewer than 35,000. The property to be purchased also needs to be less than 2,000 square feet. USDA loans also require borrowers to meet specific income eligibility requirements which can vary depending on location.
If you are eligible for a USDA loan, you can choose from three loan types depending on your income and the purpose of the loan. Low-income borrowers can opt for the Single-Family Housing Direct Home Loans, which come with terms between 33 and 38 years. Low- to moderate-income borrowers can opt for the Section 502 Guaranteed Rural Housing Loan, which comes with a 30-year fixed term rate.
For borrowers who want to finance home repairs or improvements, the Section 504 Home Repair Program is available for terms of up to 20 years.
VA home loans are a type of zero-down-payment home loan that is available to eligible veterans, active duty military or their families. If you qualify for a VA loan, you do not need a down payment, and you will also receive relatively low interest rates compared to other loan types. However, there are eligibility requirements that applicants need to meet to qualify for a VA home loan.
Borrowers who meet the requirements for a VA loan can get a Certificate of Eligibility (COE) from the Department of Veterans Affairs. It is important to keep in mind that VA home loans are offered by private lenders, so you may also have to meet the lender’s credit and income requirements to be approved.
Although VA-backed home loans are commonly used for first-time home purchases, they can also be used as a mortgage on a rental or secondary property, construction or refinancing.
Low-Down-Payment Loan Programs
Indiana first-time homebuyer programs include low-down-payment loan programs. This type of home loan is ideal for homebuyers who cannot make a 20% down payment upfront. The main types of low-down-payment home loans are FHA and conventional home loans.
Fannie and Freddie (Conventional) Loans
Conventional loans offer homebuyers low-down-payment home loans with a down payment of as little as 3%. These types of loans are not government-backed, so borrowers who may not meet the requirements for government-backed mortgages may be eligible.
Since conventional loans are offered by private lenders, minimum requirements vary. However, on average, you will need a minimum credit score of 620 and a down payment of 3% or more to be approved. Some lenders may require a down payment of at least 10% and a maximum debt-to-income ratio of 45%.
Keep in mind that for down payment amounts less than 20% of your home’s purchase price, you will be required to purchase private mortgage insurance (PMI) to protect the lender in case you default.
Conventional loans can be available as conforming conventional mortgages, which adhere to Freddie Mac or Fannie Mae guidelines, or nonconforming conventional mortgages which do not follow Freddie Mac or Fannie Mae guidelines.
Indiana first-time homebuyer programs include FHA loans, which are a low-down-payment option for homeowners who aren’t able to make a 20% down payment. FHA loans follow Federal Housing Administration guidelines but are issued by private lenders. Since they have low interest rates and flexible minimum requirements, FHA loans are popular among first-time homebuyers.
Unlike conventional loans, which require a minimum credit score of 620, borrowers can qualify for FHA loans with an average credit score between 500 and 580. However, if your credit score is 500, you’ll be required to make a minimum down payment of at least 10%. Borrowers also need to have a debt-to-income ratio less than 56.9% and provide proof of income.
FHA loan limits tend to vary depending on your location. To find out the limits for your area, you can use FHA online resources to check for your limit.
Homebuyers in Indiana who want to purchase and renovate an older home can opt for FHA 203(k) home loans. This is a type of FHA loan that is backed by the government and combines mortgage and construction loans, enabling a homebuyer to cover the purchase and renovation costs in one mortgage.
To qualify, borrowers must have a credit score between 500 and 580. However, since these loans are offered by private lenders, requirements can vary, with some lenders requiring FICO scores of 620 or higher. In most cases, FHA 203(k) home loans require a minimum down payment of 3.5%, but if your credit score is 500, you will likely be required to make a minimum down payment of at least 10%.
Although FHA 203(k) home loans can be used to cover various types of improvements, the property to be rehabilitated must meet specific energy and structural standards.
Zero-down loans: Zero-down programs are mortgage options that do not require any down payment.
USDA loans: This is a zero-down-payment loan program eligible for homebuyers in rural areas.
VA loans: VA loans are zero-down home loans available to veterans, active duty military and their families. VA loans have low interest rates and do not require Private Mortgage Insurance (PMI).
Low-down-payment loans: Low-down-payment programs are best for buyers that do not have a 20% down payment and typically accept down payments starting from 3.5%.
Fannie & Freddie loans: These are conventional loans that are offered by private mortgage lenders. They are not government-backed, but may conform to Fannie & Freddie guidelines or be nonconforming.
FHA loans: FHA loans are government-backed mortgages that require a low down payment between 3.5% and 10%. They have flexible minimum requirements.
FHA 203(k) loans: This is a type of FHA loan that combines a standard mortgage with a construction loan and is ideal for buyers who want to purchase and rehabilitate an old property.
Indiana Homebuyer Programs
Homebuyers in Indiana can take advantage of various assistance programs to help cover down payments under the Indiana Housing & Community Development Authority.
The First Place (FP) program offered by the Indiana Housing & Community Development Authority provides down payment assistance of 6% for first-time homebuyers in Indiana. Borrowers need to have a minimum credit score of 640 with a debt-to-income ratio of less than 45% to be approved.
Homeownership Opportunities Program
The Homeownership Opportunities Program (HOP) is a grant that helps first-time homebuyers in Indiana with down payment and closing expenses. HOP grants are issued through FHLBank Indianapolis members.
U.S. Department of Agriculture, Rural Development Programs
Homebuyers in eligible rural areas in Indiana may qualify for USDA loans with no down payment requirement and low interest rates. These loans are offered by the U.S. Department of Agriculture.
FAQs for First-Time Homebuyers in Indiana
You can learn more about Indiana first-time homebuyer programs in the answers to frequently asked questions below.
- Federal Housing Finance Agency. "Fannie Mae and Freddie Mac." Accessed September 26, 2022.
- fhlbi.com. "Homeownership Opportunities Program (HOP)." Accessed September 26, 2022.
- Hud.gov. "203(k) Rehab Mortgage Insurance." Accessed September 25, 2022.
- Hud.gov. "FHA Mortgage Limits." Accessed September 25, 2022.
- In.gov. "Programs." Accessed September 26, 2022.
- USDA. "Rural Development Single Family Housing Direct Loan Program." Accessed September 25, 2022.
- U.S. Department of Veterans Affairs. "Eligibility Requirements for VA Home Loan Programs." Accessed September 25, 2022.