How to Buy a House in Indiana: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration. In Indiana, the average home value is $245,844, lower than the national average of $362,481. This makes Indiana a potentially more affordable option for prospective homebuyers compared to other states.

Understanding down payment assistance programs, mortgage types and state-specific regulations and requirements can ensure a smooth journey toward homeownership in the Hoosier State. MoneyGeek compiled essential pointers to help you navigate the homebuying process in Indiana, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

The U.S. Census Bureau reported that in the second quarter of 2024, the homeowner vacancy rate in Indiana stood at 1.1%. The homeowner vacancy rate measures the percentage of vacant homes available for sale.

With a stable vacancy rate considered to be around 2%, Indiana's rate of 1.1% indicates high housing demand for limited inventory. This suggests that homebuyers in Indiana might face a competitive market with fewer choices available. For potential homebuyers, this means acting quickly and being prepared to decide when suitable properties become available.

Before buying a house in Indiana, you must examine your financial and credit history closely. A strong financial profile increases your chances of getting approved when applying for a mortgage.

Your credit score significantly affects the mortgage loans and interest rates you qualify for. A higher score increases your chances of securing a reasonable rate. According to Experian, the average credit score in Indiana is 713.

If you have bad credit (between 300 and 579 on the FICO scale), getting approved for a mortgage may be more difficult. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) allows lenders to see how much of your monthly income goes toward debt payments. This helps them evaluate the amount of mortgage debt you can manage. In Indiana, the average mortgage debt is $147,555, according to Experian. This figure highlights the additional financial responsibility you may consider when taking on a mortgage.

Monthly debt payments included in your DTI calculation typically consist of mortgage payments, credit card bills, car loans and other obligations. Use our DTI ratio calculator below to see your front-end DTI, back-end DTI, and total monthly debt payments. The front-end DTI focuses on housing-related expenses, while the back-end DTI includes all monthly debt obligations.

Buying a house you can't afford can lead to financial strain, making it essential to adhere to the 28% rule. This guideline suggests that you should not spend more than 28% of your monthly income on your mortgage payment. By following this rule, you can maintain a healthy balance between your housing expenses and other financial obligations.

According to the U.S. Bureau of Labor Statistics, the median annual income in Indiana in April 2024 was $45,470. This translates to a gross monthly income of $3,789 before taxes. Applying the 28% rule, your monthly mortgage payment should not exceed $1,061. This approach helps ensure your mortgage remains within a manageable portion of your budget.

Use our mortgage calculator below for a more precise estimate tailored to your situation.

A down payment is an upfront payment you make when purchasing a house. Typically, lenders expect a 20% down payment, which can be a significant hurdle for many homebuyers. In Indiana, the average home value is $245,844, requiring a 20% down payment of $49,169. For homes above the average value, such as $280,000, the 20% down payment amounts to $56,000.

Fortunately, saving up for a 20% down payment is not a requirement. Many mortgage types allow you to put less money down. For example, VA loans require no down payment, while FHA loans require only 3.5%.

Note that if you put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Indiana offers several down payment assistance programs that can make homeownership possible for many people. These programs aim to reduce the financial burden of buying a home, making it more accessible for a wider range of individuals. Check out the table below for the available down payment assistance programs in Indiana offered by the Indiana Housing and Community Development Authority (IHCDA).

Finding the right location in Indiana involves evaluating several factors. Consider the average house price, how close you are to family and friends, and the distance to work or school. Access to public transportation, parks, restaurantsmand shopping centers can also influence your decision. Balancing these elements can help you select a location that meets both your lifestyle and budgetary needs.

The cost of living is another important consideration when choosing a new home. According to the Missouri Economic Research and Information Center (MERIC), Indiana's cost of living index in the first quarter of 2024 is 90.3, which is below the national average of 100. Consider the following essential expenses when evaluating different locations:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Indiana and their average home values. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Indiana. They offer the advice you need, handle the paperwork, and provide an expanded list of property options you might not access alone. Additionally, they can recommend other service providers, like title companies and inspectors, to help you buy your home in Indiana.

When finding a real estate agent, ensure you do your due diligence and interview those with experience in your desired neighborhoods. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

The homebuying process in Indiana involves finding the best mortgage you can afford. Options include conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You can choose terms from 10 to 30 years and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Selecting the right financing option enhances approval chances and saves money over time.

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. The annual percentage rate (APR) differs from the interest rate as it includes additional costs like fees, providing a clearer picture of the actual cost of borrowing.

As of September 2024, the APR for a 30-year fixed conforming loan in Indiana is 6.13%. The APR for a 30-year fixed-rate FHA loan is 7.55%. Check the table below to see the current mortgage rates in Indiana by mortgage type.

Getting pre-approved for a mortgage in Indiana is a strategic step in the home buying process. It helps you understand how much you can borrow, giving you a clearer picture of your budget. Lenders issue a mortgage pre-approval letter, which signals to sellers that you are a serious buyer. This letter is typically valid for 60 to 90 days, allowing you time to shop for homes with confidence.

To obtain a mortgage pre-approval, you need to submit the following documents:

• Proof of income, such as W-2 forms or tax returns
• Employment verification
• Credit history report
• Identification documents
• Bank statements

While both pre-approval and prequalification are steps towards securing a mortgage, they differ significantly. Prequalification is an initial assessment based on self-reported financial information, while pre-approval involves a thorough review of your financial situation by the lender. This makes pre-approval a more reliable indicator of your borrowing capacity.

Home inspections are highly recommended in the homebuying process in Indiana. Inspectors typically examine key components of the house, such as the roof, plumbing, electrical systems, HVAC and structural elements. The inspection report provides a comprehensive overview of the property's condition, highlighting any areas that may require repair or further evaluation.

For example, an inspection might uncover significant issues like a faulty roof or outdated electrical wiring. Such findings can impact the home's appraisal, potentially lowering its value. This could lead the buyer to reconsider their offer, especially if the cost of repairs is substantial.

Home inspections in Indiana are regulated by the Professional Licensing Agency (PLA) under the Home Inspectors Licensing Board. Licensed home inspectors in Indiana must adhere to specific standards of practice and provide a written report summarizing their findings, typically within 48 hours after the inspection. This regulatory framework ensures that homebuyers receive a consistent level of service and reliability.

If you're looking for a home inspector in Indiana, ensure they are licensed. Check what other clients have said by reviewing online feedback and asking for references. These steps help you choose a trustworthy professional. You can also use PLA's license search tool to find or verify licensed home inspectors in the state.

Home appraisals determine a property's fair market value. This ensures that buyers pay a reasonable price and helps lenders decide on the loan amount. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost in 2023 was $500.

A home appraisal differs from a home inspection. While appraisals focus on the property's value, inspections assess its condition. Lenders require appraisals to confirm that the property's value supports the loan amount. This distinction between inspections and appraisals helps protect both buyers and lenders from potential financial risks.

Closing is the final step in buying a house in Indiana, marking the transfer of ownership and the moment you receive the keys. Your lender must provide a closing disclosure document three days before the official closing. This document outlines your loan terms, projected monthly payments and closing costs. Plan a final walk-through with your real estate agent near closing day to ensure the property remains in the expected condition.

During closing day, you'll review and complete a lot of paperwork. This paperwork is essential to finalize the purchase of your new home. Below are some documents you'll need to sign:

• Final loan application: Confirms all the details of your loan, including the interest rate and loan amount. It verifies your financial information and ensures everything is accurate before finalizing the loan.
• Deed transfer: Transfers property ownership from the seller to you. It is a legal requirement to officially become the home's new owner.
• Promissory mortgage note: Outlines your loan repayment terms, including the amount you owe, the interest rate and the repayment schedule. It is a legal promise to repay the loan under the specified terms.
• Homeowners insurance: Protecting your new home is essential. Indiana home insurance covers potential damages to your home and provides peace of mind as you settle into your new property.

Closing costs are fees paid at the end of a real estate transaction, covering various services required to finalize the purchase. In Indiana, the average closing costs are $3,155, according to NAR. These costs include several specific fees:

• Appraisal fee: The cost of having a professional appraiser determine the property's value.
• Title search and insurance fee: Fees for verifying the property's title and securing insurance to protect against future title disputes.
• Escrow deposit: Funds held in a mortgage escrow account to cover future property taxes and insurance premiums.
• Prepaid costs: Advance payments for property taxes, homeowners insurance and mortgage interest.
• Other closing costs: Additional fees such as loan origination, recording and credit report fees.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Indiana can also help you achieve homeownership faster.

Buying a house in Indiana is a financial commitment that lasts for years. We answered frequently asked questions about buying a house in Indiana to kickstart your homebuyer journey.