Indiana First-Time Home Buying Assistance Programs for 2024
By Kenny Zhu
(Last Updated – 03/2024)
The average home value in Indiana is currently $228,552, up 4.6% year over year, according to Zillow, versus the current national average of $342,941. While the typical costs may be lower than the numbers for America as a whole, that doesn’t mean buying a home for the first time is an easy feat to pull off. Many people need a helping hand in terms of their down payment, mortgage, and closing costs.
For Hoosier State house hunters, there are a number of programs that can defray the costs of buying a home. First-time buyers, especially, might want to home in on the help offered. Read on to learn more about this important topic.
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.
💡 Quick Tip: Don’t overpay for your mortgage. Get a competitive rate by shopping around for a home loan.
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 Step Program
The First Step Program allows qualifying 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 non-forgivable second mortgage.
The second mortgage requires no monthly payments, incurs no interest, and is paid back at the end of the term or when the home is sold.
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.
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 GuideHow 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 (you can check your credit score for free) 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 LoansFederal 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 the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Here are some details:
• Homebuyers choose from a list of approved lenders that participate in the FHA loan program.
• Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers, who typically need FICO® credit scores of 580 or higher. Those with low credit scores (meaning between 500 and 579) must put at least 10% down.
• Lenders will look at your debt-to-income ratio (DTI, your monthly debt payments compared with your monthly gross income). FHA loans allow a DTI ratio of up to 57% in some cases, vs. a typical 45% to 50% maximum for a conventional loan.
• 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 these loans, including FHA loans for refinance and rehab of properties, by reading up on FHA requirements, loan limits, and rates.
💡 Quick Tip: Keep in mind that FHA home loans are available for your primary residence only. Investment properties and vacation homes are not eligible.1
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 family members may apply for loans backed by the Department of Veterans Affairs. VA loans, which can be used 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.
Another benefit of VA loans is that they do not require private mortgage insurance (PMI) for borrowers who make a down payment of less than 20%. And they have more flexible credit score requirements. In some cases, even those who have previously been in foreclosure or bankruptcy can qualify.
Borrowers applying for a VA loan will need a Certificate of Eligibility from the VA so make sure to review a guide to qualifying for a VA loan as a first step in the process.
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.
US 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 2024
Here are some key numbers about being a first-time homebuyer in Indiana:
• Average home value in Indiana: $228,552
Average down payment percentage: 12.2%
• Average credit score in Indiana: 693
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.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.FAQ
Should I take first-time homebuyer classes?
These classes can be valuable for first-time homebuyers to learn what purchasing a property involves. In addition, 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.
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 will vary depending on the program you apply to, and other factors (such as your DTI) may matter as well.
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 recent data from the Indiana Association of Realtors.
Photo credit: iStock/DenisTangneyJr
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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