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Indiana first-time home buyer programs

According to some studies, Indiana is one of the most affordable states to buy a home. But buying your first home in the Hoosier State could be an intimidating process. Between the inspections and mortgage, it will likely include many financial situations you’ve never encountered. After all, this is probably the biggest purchase you’ll make in your life. Luckily, the federal and Indiana state governments have created programs specifically for first-time homebuyers.

Some cater to low-income individuals with less-than-ideal credit scores. Others are designed specifically for public servants like firefighters and teachers. No matter what your financial situation, they’re worth looking into. If you want some help deciding which of the below programs is right for you, the SmartAsset financial advisor matching tool can connect you with Indiana-based financial advisors that can help you choose.

Federal First-Time Homebuyer Programs

FHA Loans

Pros – Low down payment
– Low credit scores accepted
Cons – Higher down payments needed for those with a low credit score
Eligibility – Credit score of 500 or above
– Down payment of at least 3.5%
Best For – Anyone that doesn’t have a spotless credit history or sufficient savings for a down payment

The FHA program is a great option for anyone looking to buy a starter home. They’re backed by the Federal Housing Administration (FHA), but acquired through an outside lender. Rather than the usual 20%, borrowers only need to put down 3.5% of a home’s value at the time of purchase if they have credit scores of 528 or higher . In fact, it’s one of the easiest mortgages to qualify for.

If your credit score is closer to 500, you may need to make a down payment of up to 10%. It may seem daunting, but that’s still half of a typical mortgage down payment!

VA Loans

Pros – Loan can cover up to 100% of your home’s value
– No private mortgage insurance
– Lower closing costs
Cons – Must pay VA fee
– Application process can be drawn out
Eligibility –  Must be a current or former military member, spouse, or other beneficiary
– Typically a credit score of 620 or above
Best For – Veterans without the necessary income or savings to afford a down payment

The Department of Veterans Affairs insures VA loans from third-party lenders, which help veterans afford the American Dream of homeownership. Depending on your circumstances, you can score a VA loan with no down payment.

While significant, that is not the only benefit. Since the government will back part of your risk, you won’t have to get private mortgage insurance (PMI). Plus, since closing costs can be so prohibitive, the VA finds ways to lower them.

To qualify for a VA loan, veterans usually need a FICO® credit score of at least 620. You also need to pay between 1.25-2.4% of your home’s value into the VA fund. The exact percentage will depend on your down payment amount.

USDA Loans

Pros – No down payment
– Low credit scores accepted
Cons – Not available to those that qualify for a conventional mortgage
Eligibility – Generally must earn within 115% of the adjusted U.S. median income
– Home must be in an eligible rural area
Best For – Low- to mid-income individuals willing to live outside a major city

The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program,” better known as USDA mortgages, which attract new homebuyers to rural and semi-rural places throughout the country. In most cases, they completely eliminate the need for a down payment.

For the most part, borrowers must earn less than 115% of the U.S. median income and prove that they are unable to secure a conventional mortgage in order to secure a USDA loan. If your score falls a bit lower on the FICO® spectrum, you may have to pay a down payment around 10% of your home’s value. At half the typical down payment size, it’s still a big improvement from most homebuyer’s experience.

Good Neighbor Next Door Program

Pros – 50% flat discount off home’s list price
Cons – Only available in select areas
– Only available to certain professionals
Eligibility – Must be a police officer, firefighter, emergency medical technician or pre-K through 12th grade teacher
– Home must be your primary residence for at least three years
Best For – Public servants without adequate savings for a home

The Good Neighbor Next Door Program from the U.S. Department of Housing and Urban Development (HUD) is only available to certain public servants. Although not technically a loan, it rewards these individuals with a 50% discount on the purchase price of their home. To finance for the remaining cost of the home, you could get a conventional, VA or FHA mortgage or pay cash.

To qualify, your home must be located within a HUD-designated  “revitalization area.” Perhaps most importantly, you must stay in the home for at least three years after the purchase. So long as you meet these terms, you can sell the home and hold onto any equity and profit three years down the line.

Fannie Mae/Freddie Mac

Pros – Low down payment
– Accepts applicants with no credit history
– Multiple loan types
Cons – Higher interest rates than other federal programs
Eligibility – Must earn within location-specific income requirements
Best For – Anyone that doesn’t qualify for other federal options, but needs a low down payment option

Government-sponsored mortgage providers Freddie Mac and Fannie Mae offer a few different loans for first-time homebuyers.

The HomeReady® loan from Fannie Mae requires down payments as low as 3%. You’ll need a FICO® credit score of at least 620 and must earn an income at or near the U.S. median to qualify. With a HomeReady® loan, you must also have private mortgage insurance at the time of purchase. Luckily, you can cancel it after the loan balance drops below 80% of the home’s appraised value.

Freddie Mac offers the Home Possible® program. One of its most popular options for first-time homebuyers is the “Home Possible 97% LTV” loan. LTV stands for loan-to-value, meaning the down payment is 3%.

You don’t need a strong credit history to qualify for a Home Possible loan and you can choose 15-or-30-year fixed rate loans. The program also offers adjustable-rate mortgages for which interest rates fluctuate in time. You can also cancel the insurance as described above.

Perhaps best of all, you won’t need a strong (or any) credit history to qualify.

NADL

Pros – No down payment
– Low credit scores accepted
– No private mortgage insurance
– Lower closing costs
Cons – Only available in select areas
Eligibility – Must be a current or former military member of Native American descent, their spouse, or other beneficiary
– Home must be located in an eligible territory
Best For – Native American veterans without enough income or savings to afford a typical down payment

Native American veterans and their spouses can apply for a Native American Direct Loan (NADL). This VA-backed mortgage comes with many perks, most notably a 0% down payment and set interest rate, which is currently 4.5% but subject to change based on market and Prime Rate fluctuations. You don’t need a strong credit history to qualify for an NADL.

You also won’t have to purchase private mortgage insurance, a benefit that extends from normal VA loans. In an effort to cut down on the extra expenses of buying a home, an NADL even comes with lowered closing costs. Keep in mind that the home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts.

Indiana First-Time Homebuyer Programs

Affordable Home

Indiana first-time home buyer programs

Pros – Low down payment
– Low interest rates
Cons – Must pay reservation fee
– Cannot be combined with other IHCDA programs
Eligibility – Must meet FHA loan requirements
– Credit score of 660 or above
– Income and purchase price limits dependent on home location and household size
Best For – Low- and mid-income Indiana residents with a decent credit score

Affordable Home from the Indiana Housing and Community Development Authority (IHCDA) offers 30-year fixed-rate FHA loans with below-market rates. Borrowers must, however, prove that they have not owned a primary residence in the last three years unless they wish to live in a “target” area. You must also have a FICO® credit score of at least 660. There are also county-specific income and purchase price limits to consider.

Affordable Home is perfect for low- to mid-income borrowers who have enough savings to cover the 3.5% FHA down payment and closing costs. You can’t get upfront assistance, and you can’t combine the program with any other IHCDA program. You can get down payment assistance from an entity other than the IHCDA, though. Keep in mind there is also a reservation fee currently set at $100.

My Home Conventional

Pros – Low down payment
– Lower interest rates
– Potential to combine with a Mortgage Credit Certificate tax credit to save even more
Cons – Must pay reservation fee
– Cannot be combined with IHCDA down payment assistance
Eligibility – Must meet conventional loan requirements
– Credit score of 640 or above
– Income and purchase price limits dependent on home location and household size
Best For – Low- and mid-income Indiana residents that can’t afford a typical down payment

The IHCDA My Home program is similar to the Affordable Home program, but geared toward conventional mortgages. Borrowers only need to provide a down payment as low as 3%.

It also requires a 660 FICO® score. In addition, you’d need to complete the IHCDA University courses if you’re a first-time home

Honor Our Vets

Pros – Loan coverage up to 100% of your home’s value
– No private mortgage insurance
– Lower closing costs
– Receive $5,000 for relocation, down payment, and closing costs
Cons – Must pay VA fee
Eligibility – Must meet VA loan requirements
– Income limits dependent on home location and household size
Best For – Indiana veterans that need help covering the upfront costs of homeownership

To thank Indiana veterans for their military service, Indiana Governor Eric Holcomb launched the Next Level Veterans initiative. The Honor Our Vets (HOV) mortgage program is part of the initiative. Designed to attract qualified veterans to the Hoosier State, it provides an additional $5,000 for relocation, down payment and closing costs. That’s  on top of the already plentiful benefits of a normal VA loan.

Even though the VA guarantees a portion of the loan, participants apply for the HOV program through IHCDA’s participating lenders. If you’re a veteran thinking about moving to Indiana, this is likely the most affordable way to buy your first home.

Helping to Own Down Payment Assistance

Pros – Grant up to 3.5% of the home price
– No repayment required
Cons – Must pay reservation fee of $100
– Cannot be combined with other IHCDA programs
– Must be combined with 30-year FHA loan
Eligibility – IHCDA FHA loan participant
– Credit score of 660 or above
– Income limits dependent on home location and household size
Best For – IHCDA FHA loan participants that need more help to cover their down payment or closing costs

The Helping to Own (H2O) Down Payment Assistance Program awards FHA loan participants with a grant of up to 3.5% of the home price (or appraised value, whichever is lower) for use toward down payment and closing costs. Best of all, the funds never have to be repaid because it’s a grant.

On top of using an FHA fixed-rate loan, you must have a FICO® credit score of at least 660. You also need to earn within certain income limits. Unfortunately, you cannot combine H2O with any other IHCDA program. Even with that restriction and the $100 reservation fee, it promises savings to those that qualify.

Next Home Down Payment Assistance

Pros – Up to 3.5% of the home price
– Potential to combine with a Mortgage Credit Certificate tax credit to save even more
Cons – Must pay reservation fee
Eligibility – IHCDA FHA or conventional loan participant
– Credit score of 640 for conventional loans or 660 for FHA loans
– Income limits dependent on home location and household size
Best For – IHCDA FHA and conventional loan participants that need more help to cover their down payment or closing costs

Next Home Down Payment Assistance works much the same way as H2O Down Payment Assistance, but it’s available for both FHA and conventional loan participants. The maximum down payment assistance for FHA loans is 3.5% of the home price (or appraised value, whichever lower) and 3% for conventional loans.

Funds never have to be repaid so long as you don’t refinance the mortgage, sell the home or go into foreclosure within two years of securing the loan. You need a 660 FICO® credit score for the FHA loan and a 640 score for the conventional loan. You must also meet program income limits.

Like with the H2O program, there is a $100 reservation fee, but this is paltry when you factor in the potential savings. Unlike the H2O program, you can combine the Next Home with the IHCDA Mortgage Credit Certificate.

IHCDA Mortgage Credit Certificate (MCC)

Pros – Reduced federal tax bill
– Lasts the entire lifetime of the loan until repayment, refinancing, or sale
Cons – Must pay reservation fee
Eligibility – Income and acquisition limits dependent on home location and household size
Best For – Any Indiana borrower looking to save on their annual tax bill

In addition to loan and rate assistance programs, the Indiana Housing and Community Development Authority provides eligible homebuyers with a Mortgage Credit Certificate to make homeownership even more affordable. Through this program, borrowers receive an annual federal tax reduction equivalent to 20% to 35% of your mortgage interest up to $2,000 a year.

The rate is based on the total loan amount. The tax credit amount cannot exceed your annual federal income tax liability after all other credits and deductions. You can claim the credit every year for the life of the loan so long as the home remains your primary residence. That means it could save you tens of thousands of dollars over time.

You can use the credit if you have a FHA, conventional or IHCDA My Home loan. Eligibility requirements for the Mortgage Credit Certificate are similar to other IHCDA programs. Income and acquisition price limits apply. There is also a $500 reservation fee, but this one-time cost is a small dent in the lifetime savings the credit provides.

What to Expect From Homeownership

Indiana first-time home buyer programs

  • In the same vein, consider homeowners insurance, property taxes, and maintenance costs when you think about ongoing costs. Owning a home can be a lot more than solely monthly mortgage payments.
  • If you need help maintaining financial balance, consider seeking help from a local professional. The SmartAsset financial advisor matching tool will match you with up to three Indiana-based advisors who know all about how buying a home affects budgets.

Photo credit: ©iStock.com/wutwhanfoto, ©iStock.com/LightFieldStudios, ©iStock.com/Lokibaho

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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