is no exception. Known as the Crossroads of America, Indiana offers big and small cities, sprawling farms, and some of the best universities in the country.

All that combined with its low cost of living makes the Hoosier State a worthy contender for homebuyers to consider. However, if you’re new to buying a home—or just new to buying in Indiana—it may seem a little daunting to get started.

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Figure out your finances

Looking at potential picks for your future home in Indiana is exciting, but before you get too far ahead of yourself, make sure to sort out your finances first. This includes getting a grasp of your credit score, your debt-to-income (DTI) ratio, and all the fees and payments that add up in the home buying process.

You need this information to know what kind of house you can afford, and you can’t put in an offer on a home without it. So before you check out the real estate listings, get busy analyzing your bank statements and bills.

Check your credit score

The first place to start is with your credit score. Your credit score is perhaps the most important factor in determining what sort of home loan you’re eligible for in Indiana.

Generally, a conventional home loan requires you to have a credit score of 620 or higher. Other loan options available for those with low credit include programs from the Federal Housing Administration (FHA) or the Veterans Administration (VA).

If you aren’t eligible for either of these options, you’ll need to work to build your credit score while you save up for a down payment.

Calculate your debt-to-income (DTI) ratio

Besides your credit score, you’ll need to determine your debt-to-income ratio (DTI). To figure out your DTI, simply tally your monthly debt payments and divide them by your gross (pre-tax) income. You should include the following payments:

Rental or house payments

Car payments

Credit card payments

Student loan payments

Child support and alimony

Most mortgage companies will typically approve buyers with a DTI of 36% or lower. However, some lenders may consider your application with a higher DTI if you have a good credit score.

Determine your down payment

Expect the down payment on a conventional mortgage to be at least 20% of the cost of the home. Your ability to make a down payment will greatly impact the type of home you can afford and the type of mortgage you’ll qualify for.

However, just like those with lower credit scores, buyers who can’t pull together a big down payment still have options to make home-buying possible. The Federal Housing Administration (FHA) or Veterans Administration (VA) may have the right program for you.

Here’s more information on these two programs:

FHA loan: A mortgage insured by the FHA for low- and moderate-income homebuyers, especially if this is their first time buying a home. With a good enough credit score, your down payment for an FHA loan could be as low as 3.5%.

VA home loan: The VA insures mortgages for military service members, veterans, and eligible surviving spouses. This program provides competitively low interest rates and closing costs for qualifying buyers, sometimes with no down payment required.

Prepare for closing costs and other fees

Other fees to consider when buying a home in Indiana are closing costs and property taxes.

Compared to other states, Indiana’s closing costs are lower, with buyers paying approximately 0.7% to 1% of the home’s total value. This means that if you’re buying a home in the $200-300,000 price range, you’d need to have somewhere between $1,400 and $3,200 saved up to cover closing costs.

Closing costs cover a variety of transactions, including:

Homeowners insurance

Property taxes

Mortgage insurance

Earnest money (a deposit you put toward your down payment showing good-faith interest)

Mortgage origination fee

Home inspection fee

Credit report fee

Home appraisal fee

MORE:

What to ask a financial planner

Look for homeowners insurance

Finding the right homeowners insurance policy is important regardless of just how much your home costs. Not only does it factor into your closing costs, but it’s also a routine expense you’ll have to keep up long after closing on your home.

On average, Americans pay $1,387 a year for homeowners insurance. Factors like your home’s location and age will affect how much your policy costs.

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The 16 perils of home insurance

Key Takeaway Prepare financially before jumping into the home buying process. Take a careful look at your credit score, DTI, and budget to make sure you can afford the right down payment and home insurance.

Get preapproved for a mortgage

By now you’ve gotten a lot done in your quest to buy a home in Indiana—but it’s not time to look for a house just yet. You’ll want to get preapproved for a mortgage next. Often, sellers aren’t interested in showing a house to someone unless they can show a preapproval letter from a mortgage company.

To get preapproved for a home loan, you need to:

Fill out a mortgage application

Provide a list of your banking information, assets, debts, and employment history

Provide your Social Security number

Once you complete the preapproval application, the lender will conduct a hard credit check in order to verify your information and assess your ability to pay the loan.

Unlike a soft credit check, a hard credit check can temporarily damage your credit score, so it’s vital to ensure you are financially ready to buy before you apply for preapproval.

How to pick the right mortgage in Indiana

Just like buying homeowners insurance, you want to compare options from different mortgage lenders before you settle on one. A few things to consider are how long you’ll be paying the loan off (mortgage term) and how high your interest will be.

Most mortgages come with 15- or 30-year terms. If you opt for the longer-term mortgage, you’ll enjoy lower monthly payments, but you’ll have to pay a higher interest rate, which averages around 3.5%.

If you go for the 15-year term mortgage, you’ll get a lower interest rate (perhaps as low as 2.5%) but you’ll pay higher monthly payments. If you can afford this, a shorter mortgage term will cost you less in the long run. Take the time to evaluate which loan option is right for you.

Key Takeaway Getting preapproved for a mortgage makes the buying process go more smoothly and helps you to shop around for the right lender.

Look for a house

Now it’s time for the fun part! You’ve organized your finances and found the right lender, so you can finally start your house hunt.

Pick your city or neighborhood

Are you looking for city life or a more laid-back community? Indiana offers both. You just need to narrow down which setting best fits your interests and needs. Consider things like weather, cost of living, work commute, and local culture.

If you have an idea of the town or city you’d like to settle in, then take a look at that area’s housing market and neighborhoods. Compare these areas with your own list of must-haves. You should identify exactly what it is you want to get out of where you live.

For instance, if you have children, your proximity to good school districts might be a good place to start. If you don’t have children, you might want to find an area with a vibrant nightlife.

Buyer’s market vs. seller’s market

Find out if the real estate market is more favorable to buyers or sellers when you set out to shop.

A buyer’s market is favorable for potential homeowners because it means the number of houses for sale exceeds current demand—meaning a possibility for lower prices.

A seller’s market is when the demand has outpaced the supply of available homes. In this market, houses can sell fast and for a price higher than what the seller initially asked.

How do you know which type or market you’re in when you start shopping? Use these tips:

Look at the time properties have been on the market. If homes are staying on the market for months on end, that’s a good indicator you’re in a buyer’s market.

See what the final prices on home sales have been recently. If it’s regularly higher than the seller’s asking price, you’re in a seller’s market.

Find a real estate agent

By this point in the process, you have already put in a ton of legwork to make your homeownership dream a reality. Hiring a real estate agent can take some of the burden off your shoulders, and the agent’s expertise can help you buy the right house in the right place for your lifestyle.

As with other services, shop around for the right real estate agent. Find someone with a solid reputation in the area you’re shopping in.

Key Takeaway It’s important to know what you want before you get started in the shopping process. Have a solid idea of the type of home you need, the type of place you want to live, what you can afford, and what kind of realtor you’d like to help you.

Make an offer

When you find the right home, you’ll know it’s time to make an offer. By taking all the steps outlined above, you have prepared yourself to seal the deal on your new home. A real estate agent can help you negotiate the price and complete the paperwork needed to finalize your purchase.

How to save on homeowners insurance

It may not sound like the most glamorous aspect of home buying, but finding homeowners insurance is an important one. It’s a must if you want to keep your new investment properly protected.

Check out

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What are the requirements to buy a home in Indiana?

You’ll need to have a credit score that qualifies you for a mortgage if you plan to pay for your home with a loan. Conventional mortgages typically require a credit score of 620 or higher; however, some buyers may qualify for an FHA or VA home loan with lower credit requirements. You’ll also need to pay for the down payment and closing costs.

What are the steps to buying a home in Indiana?

First, you want to organize your finances and determine what sort of home you can afford. You also need to figure out your credit score. These factors will determine whether you qualify for a mortgage and what its terms will be.

After your financial situation is evaluated, you can work toward becoming preapproved for a loan and shopping for a home.

Do you need a real estate agent to buy a home in Indiana?

While it’s not required to hire a real estate agent to buy a home, it certainly will make the process easier. Real estate agents are experts in home buying, and a good agent will know the area you’re looking to buy in and how to help negotiate a competitive offer.

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