IHCDA First Step vs Next Home: Which One Fits You?

Search for the IHCDA First Step program and the answers do not agree. The amounts change from page to page. So do the repayment terms.

So I read the source. IHCDA, the Indiana Housing and Community Development Authority, publishes a Homeownership Program Guide for lenders. On November 6, 2026 I read that guide, IHCDA's program page, its income and purchase price tables and its FAQ. Everything below comes from those pages, and I link each one at the end.

The plain version: First Step gives 5% of the purchase price. Next Home gives up to 3.5%. Step Down gives no assistance. The assistance is a second mortgage, and you repay all of it. I will show you when, and what I would compare before you pick one.

This is the deep dive behind one section of my post on how much down payment you need in Indiana. That post covers the whole picture, including how much savings you keep after closing. This one covers a single set of programs.

First Step, Step Down and Next Home side by side

The guide lists these programs as available today, and notes that availability can change without notice. This table sticks to what the guide and IHCDA's program page say.

FHA means a loan insured by the Federal Housing Administration. Conventional means a loan that follows Fannie Mae or Freddie Mac rules. IHCDA's program page lists the Next Home assistance as 2.50% or 3.50%, and the guide says up to 3.5%. Ask your lender which amount your loan gets.

One thing to know before you check IHCDA's site. IHCDA's homebuyer page lists First Step at up to 4%. The current program guide says 5%. I used the guide for this post, and your lender locks the actual figure when they reserve your loan.

A fourth program, Next Step, is a refinance for people who already hold an IHCDA loan. The guide names First Place, First Step and Step Down loans. You cannot use it to buy. First Place ended on 12/31/2023, so a page that offers it as a current program is out of date.

The assistance is a loan, and you repay all of it

A common belief says this money gets forgiven after a few years. IHCDA's guide says otherwise. It calls the assistance "non-forgivable" and describes it as a second mortgage with IHCDA holding title.

On repayment, the guide says that when the first mortgage ends or the home stops being your primary residence, "the full amount of DPA must be repaid in full." DPA stands for down payment assistance.

The guide's list of what makes the second mortgage due is longer than most buyers expect. It comes due if you:

• sell the home
• refinance, unless the new loan comes through an IHCDA refinance program
• stop living in the home as your primary residence
• pay off or end the first mortgage
• open a home equity line of credit during the 30 years of the first mortgage
• fall into default on the first mortgage and foreclosure starts
• break other terms of the second mortgage paperwork

The guide adds one line that matters: "There is no proration associated with the IHCDA DPA loan." I read that to mean the balance does not shrink for each year you stay.

Here is the math on an example price of $300,000. I picked a round number for the arithmetic, so read it as an example only. First Step at 5% is $15,000. Next Home at 3.5% is $10,500, if the appraisal matches the price. That is what comes out of your sale proceeds or your refinance when the time comes. Your lender can confirm the exact number for your file.

Here is how I think about it with buyers. IHCDA's FAQ says the assistance "carries no interest and no payments," so it adds nothing to your monthly bill. That helps your comfort number today. It is still a second mortgage. You are responsible for it, and it sits behind your first loan. Plan for the day it comes due the same way you plan for the monthly payment.

The IRS recapture tax on First Step and Step Down

First Step and Step Down are bond-funded, and the guide says a federal recapture tax may apply to bond loans. It applies only when all three of these are true: the home stops being your primary residence within the first nine full years, you sell at a profit, and your household income that year is above IHCDA's adjusted qualifying income for your household size. If it applies, the tax can never exceed the lesser of 6.25% of the original loan amount or half of the gain.

The guide says IHCDA does not give tax or legal advice and tells buyers to consult a tax specialist. I am a realtor, so I will say the same.

Who qualifies

First-time buyer, and the exceptions

IHCDA's FAQ defines a first-time homebuyer as someone with no ownership interest in their principal residence during the last three years. The guide waives that rule for buyers who purchase in an IHCDA targeted area and for buyers with verifiable military service, which it calls an eligible veteran. Next Home accepts first-time and repeat buyers.

Income and purchase price limits

Income limits vary by county and depend on household size. The guide says household size counts the buyers on the loan, the dependents on the loan application and anyone expected to live in the home. The income that counts belongs to the buyers who will live in the home and sign the loan. Purchase price limits vary by county too.

IHCDA publishes its tables with an effective date, and they change. The set I read took effect May 25, 2026. Here is Marion County in the First Step, Step Down and Next Home table and the conventional table:

IHCDA marks Marion County with a plus sign, which its legend defines as a targeted census tract within the county, and lists a second row for it. Check IHCDA's current limits page before you rely on any of these numbers, and ask your lender which row fits the home you want.

Credit score and debt-to-income ratio

The guide does not print a minimum credit score. It also does not print a maximum debt-to-income ratio, which compares your monthly debts to your monthly income. It says IHCDA and the master servicer, U.S. Bank, set both and that lenders verify them. I will not quote a number I could not read in IHCDA's own materials. Ask your lender for the current minimums on your loan.

A few more rules from the guide

• The home must be a single-family dwelling that you use as your primary residence for the life of the loan.
• The assistance can pay for the down payment, closing costs, prepaid items and Realtor compensation.
• A buyer using the assistance cannot take cash back at closing, other than a documented investment.

Homebuyer education is required

The guide requires a homebuyer education course for all occupying applicants on conventional and FHA loans. It accepts only two certificates: Fannie Mae's HomeView or Freddie Mac's CreditWise. The certificate goes into your file before your lender can move forward. Ask your lender which course they prefer and finish it early.

How you apply: through a participating lender

IHCDA's FAQ says its homebuyer programs are offered through participating lenders, and IHCDA keeps a list of them. Your lender reserves the loan in IHCDA's system, uploads your documents and answers IHCDA's review.

Three details from the guide to plan around:

• The lender needs a valid signed purchase agreement before it can reserve the loan.
• A non-refundable $250 reservation fee is paid by you or your lender. Ask who pays it.
• IHCDA reviews every file for tax-code compliance before closing, so tell your lender at the start that you want an IHCDA loan.

How I would choose between them

I start with the monthly payment you would feel comfortable making, then work back to the program. Assistance lowers the cash you need up front. Your comfort number comes from the first mortgage payment plus taxes and insurance, so that is where I begin. My rule stays the same: comfort over max approval.

1. Get pre-approved by a participating lender and tell them you want IHCDA pricing. My post on why pre-approval is not a budget explains how to set the number first.
2. Ask for the same house priced three ways: First Step or Next Home with assistance, Step Down with a rate-only loan, and a regular FHA or conventional loan with no IHCDA money. Ask for the monthly payment, the cash to close and the second mortgage balance you would owe at sale.
3. Think about how long you plan to stay. The assistance comes due when you sell or refinance, so a short timeline changes the math.
4. Keep savings in the bank after closing. My down payment post covers closing costs, inspections and reserves.

If you own a home today and plan to buy another, Next Home is the one of the three that accepts repeat buyers. The same limits and education rules apply.

The assistance can help with closing costs and prepaid items, so it helps to know what those add up to. Roots Realty's guide to budgeting for closing costs in Indiana walks through the line items. If you want to know what income a purchase price takes, see how much income you need to buy a house in Indianapolis. And for what else you can ask for at the table, read what a first-time buyer can ask for in Indianapolis.

Not sure where you stand? Take the Quiz Insight and we will start from your numbers.

Sources I read

• IHCDA Homeownership Program Guide, page footers dated 02/2026. This is the version IHCDA's program page links to as of November 6, 2026. The guide is written for lenders and says its terms can change without notice.
• IHCDA Homeownership Programs page, read November 6, 2026.
• IHCDA Income and Acquisition Limits page, with the May 25, 2026 First Step, Step Down and Next Home table and the May 2026 conventional table.
• IHCDA FAQ on how its down payment assistance works, updated May 15, 2025.
• IHCDA FAQ on the first-time homebuyer definition, updated March 8, 2024.
• IHCDA participating lenders list.