Conventional Loan Guide for First-Time Buyers in Indiana

Conventional Loan

Conventional Loan Guide for First-Time Buyers in Indiana

Reviewed by the HomeMath editorial team Updated 2026-08-04

Key takeaways

Conventional loans require a minimum down payment of 3% for first-time buyers, compared to 5% for others.
Private Mortgage Insurance (PMI) is mandatory if your down payment is less than 20% of the home purchase price.
Indiana lenders typically utilize title companies rather than attorneys for the real estate closing process.
Debt-to-Income (DTI) ratios generally need to remain below 43% to 50% to qualify for conventional financing.

A conventional loan is a mortgage not insured or guaranteed by the federal government, such as FHA or VA loans. These loans are often backed by Fannie Mae or Freddie Mac, which set the standards for credit scores, income requirements, and down payments. Because these loans carry more risk for the lender than government-backed options, they prioritize borrowers with established credit histories and stable income.

Down Payment and Private Mortgage Insurance

First-time buyers can put as little as 3% down on a conventional mortgage. However, if you pay less than 20% of the home’s purchase price as a down payment, you must pay Private Mortgage Insurance (PMI). PMI protects the lender if you default on the loan. Unlike FHA loans, where mortgage insurance premiums often last for the life of the loan, conventional PMI is typically removable once you reach 20% equity in your home.

The Indiana Closing Process

In Indiana, the real estate closing process is typically handled by a title company rather than a real estate attorney. The title company performs a search to ensure the property title is clear of liens or ownership disputes, prepares the closing documents, and facilitates the transfer of funds. While you are not legally required to have an attorney represent you, many buyers choose to consult one if the transaction involves complex easements or unique property conditions.

Debt-to-Income (DTI) Ratio

Lenders use your DTI ratio to determine how much of your gross monthly income goes toward paying debts. To qualify for a conventional loan, your total DTI—which includes your new mortgage payment, property taxes, insurance, and other monthly debt obligations like car loans or student loans—should generally fall below 43%. Some lenders may allow a higher ratio if you have high credit scores or significant cash reserves.

Indiana Housing Programs

The Indiana Housing and Community Development Authority (IHCDA) offers various programs specifically for first-time homebuyers. These often include down payment assistance in the form of a second mortgage that can help bridge the gap between your savings and the required down payment and closing costs. These programs usually come with specific income limits and require the borrower to complete a homebuyer education course.

This information is for educational purposes only and does not constitute financial or legal advice. Mortgage guidelines, credit requirements, and loan programs change frequently. You should contact a licensed mortgage loan officer in Indiana to discuss your specific financial situation and confirm current eligibility requirements.

FAQ

Do I need a 20% down payment to get a conventional loan?

No, you do not need 20% down. First-time homebuyers can qualify with as little as 3% down, though a smaller down payment will result in monthly PMI payments until you reach 20% equity.

What is the minimum credit score for a conventional loan?

While guidelines vary by lender, most conventional loans require a minimum credit score of 620. Higher credit scores generally lead to more favorable interest rates and lower PMI premiums.

Can I use gift funds for my down payment?

Yes, conventional loans allow for gift funds from family members to cover all or part of your down payment. You will need a gift letter signed by the donor stating the money is a gift and not a loan that needs to be repaid.

How do Indiana property taxes affect my conventional loan application?

Lenders include estimated annual property taxes in your monthly debt calculation. Because property tax rates vary by county in Indiana, your lender will use the specific tax rate of the property you intend to purchase to ensure the total monthly payment fits within your DTI limit.

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