IHCDA Down Payment Assistance in Indiana: First Step and Next Home Explained

Indiana's IHCDA (Indiana Housing and Community Development Authority) offers two main down payment assistance programs that can help buyers in Indianapolis purchase a home years earlier than they could by saving independently. Many eligible buyers do not know these programs exist or assume they will not qualify. Others misunderstand how the assistance is structured and make decisions based on an inaccurate picture of what they are taking on.

This guide explains how First Step and Next Home work, who qualifies, what each program actually requires of you financially, and how to take the next step if you think you might be eligible.

The Core Concept: Assistance as a Second Mortgage

Before anything else, this is the most important thing to understand about both programs: IHCDA assistance is not a grant. It is a second mortgage. When you receive down payment assistance through First Step or Next Home, you take on two loan obligations: your primary mortgage with your lender, and a second mortgage with IHCDA representing the assistance amount. Neither program requires a monthly payment, but the repayment terms differ between First Step and Next Home and must be confirmed with your lender.

The second mortgage carries no monthly payment and no interest. But the balance is a real debt that is due when you sell the home, refinance, or pay off your first mortgage. You are not getting free money. You are getting deferred money, which is still genuinely useful, but buyers need to understand what they are agreeing to before they close.

First Step: Up to 6% for First-Time Buyers

First Step provides eligible first-time buyers with up to 6% of the lesser of the purchase price or appraised value as a down payment and closing cost assistance second mortgage. On a $240,000 home that is up to $14,400. For a buyer putting 3.5% down on an FHA loan, that covers the entire minimum down payment. For a conventional loan buyer putting 5% down, it covers most or all of it.

Who Qualifies as a First-Time Buyer for First Step

Following HUD guidelines, IHCDA considers you a first-time buyer if you have not owned a principal residence at any point in the past three years. You do not have to have never owned a home, only that you have not owned one recently. There are also exceptions for buyers in federally designated targeted areas and for eligible veterans, who may qualify regardless of prior homeownership.

Other First Step Requirements

• Loan type: First Step works with 30-year fixed-rate FHA or conventional mortgages through an IHCDA-participating lender. It does not work with adjustable-rate mortgages or other loan types.
• Credit score: Minimum credit score requirements vary by loan type. Lenders typically require 640-660+ for IHCDA programs, though requirements can vary. Confirm with your lender.
• Income and purchase price limits: Both vary by county and household size. IHCDA publishes current limits on its website. Do not rely on third-party figures. Verify at in.gov/ihcda.
• Homebuyer education: Completion of an approved homebuyer education course is required before closing. Your lender can direct you to approved providers.
• Primary residence only: The property must be your primary residence. Investment properties and vacation homes are not eligible.

Next Home: Up to 3.5% for First-Time and Repeat Buyers

Next Home provides up to 3.5% of the purchase price in down payment assistance and is open to both first-time and repeat buyers who meet IHCDA's income and credit requirements. Like First Step, it carries no monthly payment and no interest. Unlike First Step, which is explicitly non-forgivable, Next Home has an affordability period after which forgivability terms may apply depending on the loan type and program version. Confirm the current repayment and forgivability terms with your IHCDA-participating lender, as these details can change and vary by how the program is structured with your specific mortgage.

Next Home pairs with 30-year fixed FHA or conventional mortgages through an IHCDA-participating lender. Income and purchase price limits apply and vary by county and household size. Because Next Home is open to repeat buyers, it is useful for Indianapolis residents who owned a home more than three years ago, sold it, and are now re-entering the market without enough saved for a full down payment.

Pairing Next Home with a Mortgage Credit Certificate

Next Home can be paired with Indiana's Mortgage Credit Certificate (MCC) program. An MCC converts a portion of the annual mortgage interest you pay into a federal tax credit, not merely a deduction. The credit reduces your federal tax liability dollar for dollar each year for as long as you own the home and maintain the mortgage. An $800 upfront fee applies to the MCC. Whether the MCC makes sense depends on your tax situation, and a tax professional or your lender can help you evaluate it.

How to Apply for Either Program

You apply for First Step or Next Home through an IHCDA-participating lender, not directly through IHCDA. The lender manages the application alongside your primary mortgage application. The process runs parallel to a standard home purchase and does not add significant time, but it does require the homebuyer education course to be completed before closing.

Steps to get started:

1. Review current program guidelines, income limits, and purchase price limits at in.gov/ihcda.
2. Contact an IHCDA-participating lender. Ask specifically which program you may be eligible for and what documentation they will need.
3. Complete an approved homebuyer education course. Your lender can provide a list of approved providers. You will receive a certificate to submit with your application.
4. Apply for both the primary mortgage and the IHCDA assistance program simultaneously with your participating lender.

What These Programs Do Not Cover

IHCDA assistance applies to the down payment and may apply to closing costs, but it does not eliminate all upfront costs. Prepaid items, including property tax escrow and the first year of homeowners insurance, are collected at closing separately and are not covered by the assistance. Budget for these in addition to any remaining down payment amount after assistance is applied. Closing costs on a $240,000 home run approximately $7,200 at 3% of the purchase price. Your lender will provide a Loan Estimate breaking down all costs within three business days of your application.