How to Buy a House in Indiana: A Homebuyer’s Guide

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Edited byScott Strandberg
Edited byScott Strandberg

Updated: March 1, 2023

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There has been an increase of about 13.3% in the average home value in Indiana over the past year, reaching $227,679. Prices in Indiana are lower than the national average of $357,589. The cost of a home is one of the most important factors to consider when purchasing one, but other factors like the loan terms should also be considered.

If you're a first-time homebuyer in Indiana, there are a few steps you have to follow in order to avoid going into debt. MoneyGeek has compiled the steps you can take to buy a home in Indiana.

Key Takeaways

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During the past year, Indiana's average home cost has increased by 13.3% to $227,679.

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A mortgage requires that a homebuyer meet certain credit, debt-to-income ratios and income requirements. In addition, buyers are usually required to pay a down payment upfront.

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Prior to closing on a home in Indiana, you need to identify the right location, calculate interest rates, get pre-approved and have a home inspection performed.

Choose an Ideal Location

The location of your home affects its cost. If it’s closer to important resources like amenities, recreational activities, good schools and stores, this can cause the value of the home to increase.

Beyond that, you also want to consider the cost of living in the location you are considering, as this can impact your overall budget.

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WORK WITH A REAL ESTATE AGENT

The number of properties available in the housing market can sometimes seem overwhelming. To get a better understanding of how to buy a house in Indiana, it can be wise to consult with a real estate agent. Getting your dream home might be easier if you go this route.

If you are unsure of where to begin, ask your family and friends for recommendations. Request references from recent clients after creating a shortlist.

In addition, MoneyGeek recommends getting a real estate agent who possesses these qualities:

  • Understands the local housing market in depth
  • Is honest
  • Communicates clearly and effectively

It is ultimately up to you to determine which agent is most appropriate for your homebuying needs.

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CALCULATE THE COST OF LIVING

There is a great deal of variation in Indiana's cost of living based on where you live. When searching for the least expensive house in Indiana, the cost of living in a particular area will also need to be taken into account.

You should consider your living expenses when choosing a location, including:

  • Water, electricity and internet services
  • Gas prices or transit passes
  • Food
  • Costs associated with auto insurance
  • Costs associated with medical insurance
  • Real estate, property and income taxes

Find out how much an Indiana family needs to live comfortably using MoneyGeek's cost of living calculator.

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CONSIDER AFFORDABLE NEIGHBORHOODS

If you want to save money on your home purchase, opting for an affordable neighborhood could be your best option. The suburbs tend to be cheaper than big cities.

However, there may be fewer schools, hospitals, malls and other social amenities in the suburbs. The social amenities offered by cities are despite their higher cost. Choosing a place to live requires careful consideration of property prices and living costs.

According to Zillow, the neighborhoods with the lowest housing costs in Indiana are Indianapolis and Speedway.

Calculate Mortgage Rates

It is important to understand Indiana mortgage rates before you buy a home. In order to decide which mortgage option is best for you, you must consider your profile and needs. Mortgage rates vary depending on the type of loan.

It might be possible to get a lower interest rate and a larger mortgage if you have a good credit history, a good income and a low debt-to-income ratio. Comparing lenders can also help you find the lowest mortgage rates.

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SEE YOUR MORTGAGE OPTIONS

The mortgage options available to homebuyers in Indiana are varied. Additionally, each type of loan has its own eligibility requirements, terms and limits.

Before making a decision, you should consider your credit score, job history, debt-to-income ratio and income. Depending on the lender you choose, you may have to meet specific requirements.

The following are the average interest rates for each type of loan with a term of 30 years:

Before applying for a loan, ensure that you qualify for it. For example, veterans and their families are the only ones eligible for VA loans.

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USE A MORTGAGE CALCULATOR

You can save money by calculating your mortgage estimate with our calculator. You can customize it to fit your situation and financial background to find out how much a home in Indiana costs.

MoneyGeek's FHA vs. conventional loan calculator can help you decide which loan type is best for you.

After you have calculated all the important numbers, you can now choose a mortgage lender. Whether you are a first-time buyer or in need of housing assistance, make sure you compare your financing options.

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KNOW YOUR QUALIFICATIONS

The requirements, terms and limits of each lender are different. It is beneficial to know your financial profile in order to save time. Lenders typically assess your mortgage application based on the following factors:

  • Credit score: Most lenders prefer borrowers with fair or good credit scores, although this may not be required for certain loan types.
  • Gross income: Your earnings usually reflect your ability to pay back your mortgage.
  • Debt-to-income (DTI) limits: These limits indicate how much of your income is used to pay off outstanding debts.
  • Down payment: Your ability to pay upfront indicates your risk to the lender.

You can improve the aspects of your application that fall short if you do not meet certain eligibility requirements.

Prepare Down Payment Requirements

The down payment requirements for different types of mortgages vary. A down payment of 3.5% is required for some mortgage options, while a down payment of at least 20% is usually required for others.

There are even some home loans that require no down payment, like VA and USDA home loans.

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DETERMINE DOWN PAYMENT REQUIREMENTS

Down payments are one of the highest upfront costs when buying a home. In order to qualify for conventional loans, buyers typically need a 20% deposit. You can get a mortgage with just a 3.5% down payment through low-down-payment mortgages. There are also zero-down-payment programs available, like VA and USDA loans.

It is important to note that you must meet certain criteria in order to qualify for a zero-down-payment mortgage. There is no down payment required for USDA home loans, but only rural homebuyers are eligible.

The amount of your down payment will have a bearing on your interest rate and monthly payment. A lower interest rate and a lower monthly payment are usually associated with a higher down payment.

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CALCULATE MORTGAGE INSURANCE

In addition to mortgage insurance, homebuyers should also consider homeowner's insurance, which protects lenders against defaults. A mortgage insurance policy is also required for borrowers with less than a 20% down payment.

Private mortgage insurance (PMI) may be required for conventional loans. PMI can sometimes be canceled after borrowers make timely payments for a few years. There is no need to purchase mortgage insurance with VA loans. FHA and USDA loans may also require insurance.

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DOWN PAYMENT ASSISTANCE PROGRAMS

For some homebuyers, a 20% down payment can be prohibitively expensive. Indiana offers a number of programs to assist with down payments. Here are a few examples:

  • USDA loans: Indiana residents can apply for loans from the U.S. Department of Agriculture to build single-family homes. If you are in the low to very low income bracket, you may qualify for a loan.
  • IHCDA DPA: The IHCDA down payment assistance program will provide up to 6% of your down payment based on the purchase price of your home.

You can explore other housing assistance loans if these options don't work for you. First-time homebuyers can also take advantage of Indiana’s programs.

Get Pre-Approved for a Mortgage

Getting pre-approved for a mortgage is the next step in your homebuying process. With pre-approval, you can discuss your budget and lender's terms.

Remember that pre-approval is different from prequalification. An estimate of the loan amount is provided by your lender when you prequalify. In contrast, a pre-approval usually involves a hard credit check, while a prequalification does not.

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GATHER NECESSARY DOCUMENTS

Your personal and financial information will generally be requested by mortgage lenders. In order to evaluate your debt-to-income ratio and credit history, these documents will be required. A mortgage application may also require you to submit additional supporting documentation to prove your eligibility.

Documents you should expect to be requested by the lender include:

  • Driver's license
  • Social Security card
  • A copy of your latest pay stub
  • W-2s for the past three years
  • Statements from your bank account
  • Credit card and debt list

Depending on your situation, you may need to provide other documents as well. A statement of unpaid accounts receivable and profit and loss statements will be required if you are self-employed.

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TIME YOUR PRE-APPROVAL

Pre-approval requires precise timing. The mortgage approval process can be sped up by gathering all the required documents.

You can expect to receive a pre-approval letter from your lender within ten business days. Then the pre-approval letter is generally valid for 30 to 90 days. You’ll want to make sure you don’t apply for your pre-approval until you are ready to buy a home. Otherwise, you may have to start the pre-approval process all over.

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RECEIVE PRE-APPROVAL LETTER

You can find out how much you can borrow from a lender with a pre-approval letter. In addition, it shows that you're serious about home ownership and have the financial resources to take out a mortgage. There is no limit to the number of pre-approval letters you can request. However, lenders will conduct hard credit checks, which can affect your credit score.

In a pre-approval letter, you will typically find the following details:

  • Amount of the maximum loan
  • Loan type
  • Loan term
  • Mortgage payment per month
  • Interest rate

Also, keep in mind that your pre-approval will only last 30 to 90 days, so make sure to time your pre-approval request appropriately.

Conduct a Home Inspection

Home inspections are an important part of the home purchasing process. An inspection conducted by a third party can provide you with more information about the current condition of a home and if any repairs need to be made. In most cases, home inspections are paid for by the buyer.

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CONTACT A LICENSED INSPECTOR

If you are looking for an Indiana home inspector, make sure they are licensed since some may lack the professionalism needed. In addition to assessing a home for repairs and upgrades, a professional inspector will offer guidance based on the results of the inspection.

The home inspection process typically includes an assessment of the following areas:

  • Basements and foundations
  • Roof
  • Interior and exterior
  • Electrical and power systems
  • Door and window frames
  • The plumbing system
  • Chimneys
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FOLLOW INDIANA-SPECIFIC INSPECTIONS

To assess potential homes for buyers, home inspectors can use Indiana's State Properties Commission's facility inspection checklist. You should also consider a separate evaluation to ensure the property is risk-free, even if the seller requests an inspection before mortgage approval.

Depending on your agreement, a professional home inspector may provide expert advice on required repairs and upgrades based on their assessment. The state of Indiana does require inspectors to be licensed. Your real estate agent can guide you about conducting an inspection in your area, as inspection guidelines may vary at the county level as well.

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GO THROUGH APPRAISAL

Before committing to financing a home, mortgage lenders perform appraisals to determine the home’s value. The property is appraised by a professional. In some cases, the resultant value differs from the seller's expectations.

Lenders also use appraisals to determine whether you have overborrowed since if you default on your mortgage, the home may be repossessed. As part of a standard appraisal, the market trends for similar properties are considered as well as the structure of the home.

The Indiana Real Estate Commission is responsible for reviewing and managing Indiana appraisers.

Close Your Mortgage Loan

Once your home is appraised, it’s time to close your mortgage loan. Prior to closing the process, make sure you go over the details of the offer. During this stage, mortgage loan applicants must pay application fees.

An Indiana down payment assistance program may help offset the closing expenses if you are unable to raise the funds.

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SIGN ALL DOCUMENTS

Signing the documents is the stage when most of the mortgage paperwork is completed. You will need to sign the following documents, including the final loan application form, the property deed and the closing disclosure:

  • Mortgage note: You will find detailed information about the loan's features and repayment guidelines in this document. By signing it, you are legally bound to the loan agreement.
  • Property deed: Details about the property are included in the property deed, proving the transfer of ownership from the seller to the buyer.
  • Final loan application: The loan application form can be signed and returned to the lender after ensuring the information is accurate.
  • Closing disclosure: You are required to return the disclosure to the lender within a certain period of time to receive additional information about your loan.

Before signing any loan documents, be sure to ask the lender about any unclear terms and make sure you are ok with all the terms.

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PAY CLOSING COSTS

Closing expenses may range from 2% to 5% of a home's total cost depending on the lender, loan terms and location.

The following are common costs across Indiana lenders:

  • Title search costs: A title search will cost you some money to verify that the property is in your name.
  • Escrow: In addition to paying taxes and homeowners insurance, escrow accounts are useful for managing mortgage insurance and mortgage payments.
  • Appraisal costs: The lender instructs the homebuyer to conduct a home appraisal, but the buyer pays for the costs of this crucial process.
  • Inspection fees: You will also have to pay for the services of a professional home inspector as part of the closing costs.
  • Legal fees: You may need to pay an attorney if the property is transferred to your name.
  • Origination fee: Some lenders may charge you an origination fee of a certain percentage of your mortgage, although not all loans are subject to this fee.
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COMPLETE YOUR HOME PURCHASE

If you don't follow the right process, buying a home can be quite tedious. Through MoneyGeek's detailed shopping tips, you can find the best place to buy a home in Indiana with confidence, starting with finding the best place for your family and ending with confirming ownership.

You will then need to estimate your mortgage rates and make your down payment after confirming the ideal location of your property. A lender will conduct an appraisal after you conduct an inspection of the property.

A home purchase is a major achievement that requires dedication, particularly during the repayment process. To avoid incurring additional charges, ensure you pay your monthly mortgage premiums by the due date once you get your mortgage.

Indiana Homebuying Details

It's important to understand that Indiana's average house price is lower than the national average. Choosing an area with access to the amenities you need is crucial since some parts of Indiana are hard to access by road.

Buying a home in Indiana is possible through both conventional or government-backed mortgages. Various down payment assistance programs are available in Indiana for those who are unable to afford down payments or closing costs.

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Take into account the total cost of living in your ideal neighborhood when calculating the total cost of purchasing your home. Calculate the cost of living in different counties in Indiana with MoneyGeek's cost of living calculator.

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It is important to make sure that you don't exceed the conforming loan limits in Indiana when choosing a mortgage loan. In contrast to conventional loans, FHA loans vary from county to county.

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Those who qualify for a 1% interest rate reduction on the first $50,000 of their mortgage can also buy a home if their income meets certain limits.

Frequently Asked Questions About Buying a Home in Indiana

A house purchase can have serious financial consequences if you don't plan appropriately and follow the right process. In order to ensure you find the best option for your profile, MoneyGeek offers answers to frequently asked questions about Indiana homebuying.

What are the most important questions to ask when buying a house in Indiana?
Is buying a house in Indiana a good idea?
Is it wise to buy a house in Indiana in 2023?
How much income do I need to buy a house in Indiana?
How much is property tax in Indiana?
Which Indiana city is the cheapest to buy a home?
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