Indiana FHA Loans provide homebuyers in Indiana with a more affordable loan option than a traditional loan. At The Home Loan Expert, we’ve helped many Indiana residents purchase their homes with an FHA Loan–it’s actually one of our most popular loans to date.
What are the requirements to get an FHA Loan in Indiana? And what about FHA Loan limits, down payments, and credit scores required? We’ll cover it all here.
The Federal Housing Administration (FHA) offers mortgage insurance on loans made by FHA-approved lenders. FHA loans have guidelines that make them more accessible to borrowers especially first-time homebuyers. If you’re looking to buy a home in Indiana with an FHA loan it’s important to understand the guidelines. In this comprehensive guide, we’ll cover everything you need to know about Indiana FHA loan guidelines.
Overview of FHA Loans
FHA loans are government-backed mortgages insured by the FHA Here are some key things to know about FHA loans
- Require a lower minimum credit score than conventional loans (580 vs 620)
- Offer low down payments, with a minimum of just 3.5%
- Charge an upfront and annual mortgage insurance premium
- Have flexible underwriting guidelines for debt-to-income ratio and credit history
- Can be used to purchase or refinance primary residences only
The less stringent requirements make FHA loans ideal for first-time homebuyers and borrowers with lower credit scores or savings. The trade-off is you have to pay mortgage insurance over the life of the loan.
Indiana FHA Loan Limits
The maximum loan amount you can borrow with an FHA loan depends on the county where the property is located. FHA sets limits based on median home prices in each area.
For 2023, the standard FHA loan limit for all counties in Indiana is:
- $498,257 for single-family homes
- $958,350 for 2-4 unit properties
High-cost areas like Bloomington have higher FHA loan limits up to $722,500 for single-family homes. You can look up the limits for each county on the FHA mortgage limits page.
Indiana FHA Down Payment Rules
One major benefit of FHA loans is the low down payment options. Here are the down payment guidelines for FHA loans in Indiana:
- Minimum down payment is 3.5% of the purchase price
- On a $300,000 home, this equals a $10,500 down payment
Borrowers with lower credit scores between 500-579 may need to put down 10%. The down payment percentage is determined by your credit score:
- Credit score 580+ = 3.5% down
- Credit score 500-579 = 10% down
Gift funds and downpayment assistance programs can be used for the down payment on an FHA loan in Indiana.
Indiana FHA Credit Score Requirements
To qualify for the lowest down payment on an FHA loan, you’ll need a minimum credit score of 580. Here are the credit score guidelines:
- Minimum FHA credit score is 500
- Score of 580+ qualifies for 3.5% down
- Score of 500-579 requires 10% down
Some lenders may impose higher minimum score requirements. The goal is to compensate for lower scores with larger down payments.
Non-traditional credit may also be used to qualify borrowers with limited credit histories.
Debt-to-Income Ratio Rules for Indiana FHA Loans
Part of meeting Indiana FHA loan guidelines is keeping your debt-to-income (DTI) ratio within limits. The DTI measures your total monthly debt payments against your gross monthly income.
FHA has more flexible DTI requirements than conventional mortgages:
- Maximum DTI is 57% with an FHA loan
- Compared to 45% for conventional loans
A higher DTI is allowed, but may require additional underwriting review. The lender will evaluate your entire financial picture.
Indiana First-Time Homebuyer Programs
In Indiana, first-time buyers may be eligible for downpayment assistance (DPA) through state and local programs. Some options include:
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Next Step Neighborhood Home Program: Get up to $7,500 in DPA if you purchase in a designated neighborhood.
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Homeowner Assistance Fund: Provides up to $25,000 for down payment help and closing costs to income-eligible buyers.
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The DPA Program: Offers a second mortgage with up to $5,000 in DPA for down payment and closing costs.
Check requirements for household income limits, home price caps, and eligible locations. The DPA acts as a second mortgage with 0% interest and deferred payments.
Indiana FHA Refinancing Options
Current FHA mortgage holders may want to refinance to lower their interest rate or payment. Some popular FHA refi programs in Indiana include:
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FHA Streamline Refinance: Lowers rates/payments without an appraisal on existing FHA loans. Limited documentation required.
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FHA Cash-Out Refinance: Take equity out of your home to consolidate debt or make home improvements. Requires full underwriting.
Talk to a lender to go over the pros and cons and see if refinancing makes sense for your situation.
Indiana FHA Guidelines Summary
The key highlights of Indiana’s FHA loan program include:
- Lower minimum credit scores and down payments than conventional mortgages
- Maximum loan limits between $498k to $958k depending on property type
- Minimum down payment of 3.5% on credit scores 580+
- More relaxed debt-to-income ratio up to 57%
- Options like downpayment assistance for first-time buyers
- Streamline and cash-out refinance programs available
By understanding the Indiana FHA loan guidelines upfront, you can determine if this flexible mortgage solution fits your homebuying needs and financial situation. Reach out to a lender to start the pre-approval process and get matched with the right FHA loan product for you.
What are the FHA Loan Limits in Indiana?
Homebuyers in Indiana can borrow up to $480,680 with an FHA loan for a single-family home. This loan applies to every county in Indiana but increases for multi-family homes.
FHA Loan Indiana Requirements
Individual lenders might have some variations in their FHA Loan requirements, but the basics are the same. Before anything else, you’ll need:
- Valid Social Security number
- Proof of residence in the United States
- Legal age according to your state
After you meet these qualifications, an FHA Loan is easier to obtain than a traditional mortgage. Here are some more specific FHA Loan requirements:
- Minimum credit score: 500
- Loan term length: 15 or 30 years
- Minimum down payment: 3.5% for credit scores over 580; 10% for credit scores between 500-579
- Down payment gift: Entire down payment can be a gift
- Down payment assistance: Programs available
- Mortgage insurance: Upfront and every year for the life of the loan or 11 years
- Mortgage insurance premiums: 1.75% upfront; 0.45%-1.05% annually
If your credit score is less than 500, consider lowering your debt-to-income ratio, setting alarms to avoid late payments, or delaying your mortgage application until your credit score is a bit higher.