Indiana First-Time Home Buying Assistance Programs for 2023

Indiana First-Time Home Buying Guide

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    By Kenny Zhu

    (Last Updated – 06/2022)

    The median home sales price in Indiana rose 11.8% year-over-year by April 2022, according to Redfin, to nearly $255,000. This represents an annual increase of nearly $27,000.

    At the same time, the number of homes for sale fell 16%.

    While these numbers may sound intimidating for Hoosier State house hunters, there are a number of city, state, and federal programs that can defray the costs of buying a home. First-time buyers, especially, might want to home in on the help offered.

    Who Is Considered a First-Time Homebuyer in Indiana?

    First things first: The Indiana Housing and Community Development Authority’s definition of first-time homebuyer mirrors the federal one: anyone who has not owned a principal residence in the past three years.

    Homebuyers seeking to purchase in a targeted area and qualifying veterans are exempt from having to meet the first-time homebuyer requirement.

    3 Indiana Programs for First-Time Homebuyers

    The Indiana Housing and Community Development Authority aims to encourage homeownership by providing down payment assistance for both first-time and repeat homebuyers with low to moderate incomes.

    Here are details about the three homebuyer assistance programs offered through Indiana Housing, which provides special deals on FHA, VA, and conventional mortgages.

    1. First Place Program

    The First Place Program allows first-time homebuyers, buyers of homes in target areas, and qualified veterans using a 30-year FHA loan to borrow up to 6% of the purchase price of the home for a down payment or closing costs in the form of a forgivable second mortgage.

    The second mortgage requires no monthly payments, incurs no interest, and is fully forgivable after nine years, provided the buyer does not sell or refinance the home in the interim. The First Place Program cannot be combined with the mortgage credit certificate.

    Borrowers must have the following minimum FICO® credit score and debt-to-income ratio (DTI) to qualify:

    •  640 and DTI of less than 45%

    •  680 and DTI of less than 50%

    They also must meet income limits , and the single-family home, condo, townhome, planned unit development, or manufactured home being purchased must meet agency limits.

    participating lenders

    2. Next Home Program

    Indiana Housing offers Next Home assistance to both first-time and repeat homebuyers, who can obtain 3.5% of the value of their home purchase for a down payment if using a 30-year FHA loan.

    The down payment assistance is forgivable after only two years, provided you don’t sell or refinance your home. And the assistance can be combined with the mortgage credit certificate.

    The borrower requirements and income limits are the same as the First Place Program.

    3. Mortgage Credit Certificate

    Indiana Housing’s mortgage credit certificate program provides an annual federal income tax credit for up to $2,000 of mortgage interest paid per year.

    First-time buyers (and the others mentioned) can apply for the mortgage credit certificate through a participating lender when they apply for a loan.

    The program fee is $800, but the savings from the lifetime of the credit often outweighs the fees.

    Recommended: First-Time Home Buyer Guide

    How to Apply to Indiana Programs for First-Time Homebuyers

    To start applying for one of the homebuyer assistance programs of the Indiana Housing and Community Development Authority, you can complete an online survey to see what assistance programs are available in your county. Depending on which county you reside in, you may be able to qualify for additional assistance based on your municipality.

    The Department of Housing and Urban Development (HUD) also lists assistance programs in Indiana cities. Bloomington, for example, provides assistance of up to $10,000 to first-time homebuyers in the form of a forgivable, five-year second mortgage. Income and purchase limits apply.

    Once you’ve completed the survey, you’ll receive an email summarizing what programs you might be eligible for and providing you with the next steps. From there, you can start searching for participating lenders .

    It’s important that you have a good sense of your credit score and DTI to ensure that you meet the requirements. However, the lender you choose can also determine whether you’re eligible.

    Once you submit a loan application, your lender will work with you to identify a fitting mortgage loan and ensure that you meet all the requirements of the program.

    Then it’s time to find a real estate agent and shop for a home.

    Recommended: Understanding the Different Types of Mortgage Loans

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of HUD, insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans in general and FHA lending limits by area.

    Keep in mind that you’ll need a credit score of at least 640 or 680 to qualify for one of Indiana Housing’s homebuyer assistance programs.

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible surviving spouses may apply for loans backed by the Department of Veterans Affairs. VA loans , to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    U.S. Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    This program helps teachers, police officers, firefighters, and EMTs qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    Indiana First-Time Homebuyer Stats for 2022

    Here are some key numbers from the Indiana Association of Realtors® and the National Association of Realtors®.

    •  Percentage of buyers who are first-time homebuyers in Indiana: 35%

      … in the U.S.: 34%

    •  Median age of Indiana first-time homebuyers: 32

      … in the U.S.: 33

    •  Median household income of Indiana buyers: $85,000

      … vs. Nationwide: $102,000

    •  Median down payment for all first-time homebuyers: 7%

    Additional Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    Some first-time homebuyers in Indiana have access to state and city down payment assistance to make buying a house more affordable. Others may find advantages with government-backed or conventional mortgages on their own.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.

    Is there a first-time homebuyer tax credit in Indiana?

    Yes. Indiana offers a mortgage credit certificate, which allows eligible borrowers to claim a federal income tax credit of up to $2,000 per year for mortgage interest paid.

    The tax credit percentage will dip to 30% and below for the state’s basic mortgage tax credit program.

    Is there a first-time veteran homebuyer assistance program in Indiana?

    While not specific to veterans, the state agency’s homebuyer assistance programs provide an exemption to the first-time homebuyer rule for qualifying veterans, active-duty military personnel, reserves, and surviving spouses.

    What credit score do I need for first-time homebuyer assistance in Indiana?

    The minimum credit score required to qualify for Indiana Housing’s homebuyer assistance is 640 or 680, depending on DTI.

    What is the average age of first-time homebuyers in Indiana?

    The median age of a first-time homebuyer in Indiana is 32, according to the Indiana Association of Realtors.

    Photo credit: iStock/DenisTangneyJr

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