Indiana is known as the “Crossroads of America,” but in 2020, plenty of people made permanent stops in the state. In fact, Indiana’s housing market surged in the past year, with the median sale price leaping nearly 18 percent, according to real estate brokerage Redfin.
If you’re a first-time homebuyer, Indiana can offer you help with the costs of becoming a homeowner. The Indiana Housing & Community Development Authority, the state’s housing finance agency, works with a wide range of banks, credit unions and mortgage lenders to help low- and moderate-income residents purchase homes.
Indiana first-time homebuyer loan programs
There are many types of mortgages available to first-time homebuyers in Indiana, including FHA, VA and USDA loans, which have a lower down payment requirement and typically lower credit minimums. Many mortgage lenders also offer conventional loans with as little as 3 percent down with private mortgage insurance, which can be a viable option for some.
At the state level, the Indiana Housing & Community Development Authority’s (IHCDA) conventional loan programs remain suspended as of February 2021. In May 2020, the agency paused accepting all new Fannie Mae and Freddie Mac loan applications after determining that new overlays — the additional requirements imposed on borrowers to help mitigate the risk of default — coupled with area median income limits eliminated the viability of these programs. The IHCDA hopes to develop a program that lenders can use “at some point,” according to an agency rep.
While these programs historically offered discounted interest rates, the good news is that interest rates overall are already very low. Consider exploring other first-time homebuyer programs, and then turn to the IHCDA for additional help with the costs of owning your first home, including down payment assistance.
Indiana down payment assistance
IHCDA First Place program
The down payment and closing costs are expenses that typically deter first-time homebuyers. The IHCDA’s First Place program is designed to make coming up with that big chunk of cash much more manageable, offering a second mortgage of up to 6 percent of the purchase price in assistance.
There are no additional monthly payments or interest charges on this second mortgage, and if you live in the home you bought for at least nine years and stay current on all of your other duties as a homeowner, it’ll be forgiven after that time. However, if you sell the property or refinance the first mortgage in those years, you’ll need to pay the second mortgage back.
You could qualify for the First Place program if you’re taking out a 30-year FHA loan. To be eligible, you must also be a first-time buyer — defined as someone who has not owned a home in the past three years — or buying in a “Targeted Area,” or a veteran.
- 640 minimum credit score with a debt-to-income ratio under 45 percent
- 680 minimum credit score with a debt-to-income ratio above 45 percent (but no more than 50 percent)
- Must meet IHCDA income limits, which range from $72,300 to $120,820, depending on where you’re buying and how many will live in the household
- Must be a single-family home, condominium, townhome, planned unit development (PUD) or a manufactured home affixed to a permanent foundation
- Must be in Indiana
- Must be a primary residence (investment properties and rental properties do not qualify)
- Must meet IHCDA purchase price limits (also known as “acquisition cost” limits), which range from $294,601 to $399,400 across the state’s 92 counties
IHCDA Next Home program
Next Home is another option from the IHCDA to help make your home purchase more affordable, although it’s open to anyone, not just first-time homebuyers. The down payment assistance is smaller compared to the First Place program: only up to 3.5 percent of the purchase price. The borrower requirements, income limits and property cost limits, however, are the same as the First Place program.
Other first-time homebuyer loan programs
Mortgage credit certificate (MCC)
In addition to help with buying a home, you can also explore Indiana’s mortgage credit certificate (MCC) program, which can play a useful role in reducing your tax bill. An MCC is a federal income tax credit, in Indiana equal to 25 percent of the amount you borrowed, up to $2,000 per year. The credit can make a difference in your tax bill throughout the life of your 30-year mortgage. It can be used in tandem with the IHCDA’s Next Home program, and the same income and purchase price limits apply. There is a program fee of $800, however.
Local homebuyer assistance programs
Depending on where you want to call home in The Hoosier State, you might be able to take advantage of other local down payment assistance programs. For example, in the city of Bloomington — home to Indiana University — the HAND Down Payment and Closing Cost Assistance program can give first-time homebuyers who earn up to 80 percent of the area’s median income as much as $10,000 to help with initial homebuying expenses. A similar program in Fort Wayne can help first-time buyers get up to $8,000 of assistance, provided they can contribute at least $1,000 to the purchase and complete a homebuyer education course.
For other Indiana homeownership programs, including by city, visit HUD.gov.
Are you ready to move from first-time home browser to first-time homebuyer? Start by completing this questionnaire on the IHCDA’s website to get a better idea of which assistance options you might qualify for. Once you have an idea of how much help you can receive, compare interest rates and options from the many mortgage lenders that participate in the agency’s programs. Some institutions might offer additional assistance for certain types of workers, too — first responders and teachers, for instance — so be sure to investigate any other programs that could fit your situation.