Indiana's First Step and Next Home Programs: Down Payment Help, Income Limits, and What the Lender Has to Do

Have you heard of IHCDA, the Indiana Housing and Community Development Authority? If you are shopping for a first home anywhere in Indiana's 92 counties, this is the agency whose down payment assistance Indiana homestead deduction your lender either offers or does not, and that single fact is usually worth several thousand dollars at the closing table.

Most Indiana buyers arrive at that conversation carrying a program name picked up from a search result or a relative: First Place. That name is worth settling before anything else, because the program behind it closed on December 31, 2023.

What replaced it looks similar on the surface and behaves differently in one way that matters enormously. Every dollar of IHCDA down payment assistance available in 2026 is a non-forgivable second mortgage, which means it is money you repay rather than money that quietly disappears after a few years of ownership.

What Happened To First Place

IHCDA's own Homeownership Program Guide, in the paragraph describing the Next Step refinance, states that First Place "ended 12/31/2023." The First Place FHA and conventional program guides now sit under the "Archive IHCDA Program Guides" heading on the agency's programs page, which is where retired products go.

First Place survives in exactly one place, and that place only matters if you already own an Indiana home financed through it. Next Step, IHCDA's one-time refinance product, is open to borrowers currently holding a First Place, First Step, or Step Down first mortgage.

Keep in mind that the retired First Place structure is also where most of the "forgivable after a few years" folklore comes from. The current guide describes the assistance under every active program as non-forgivable, with the full amount due upon termination of the first mortgage or upon the property no longer being used as a primary residence.

The Four IHCDA Programs Available In 2026

IHCDA runs four homeownership products statewide, and only two of them put money toward your down payment. The other two exist to buy down your interest rate or to refinance an existing IHCDA loan, and the table below sorts out which is which as described in the Homeownership Program Guide dated 9/1/2026.

Program	Who it is for	What you get	Funding and tax note
First Step	First-time buyers, unless the property sits in a HUD-designated target census tract or the applicant has verifiable military status	Non-forgivable DPA based on purchase price, on FHA, Freddie Mac, or Fannie Mae 30-year fixed financing	Bond funding; the guide states the borrower is subject to IRS recapture tax if the required thresholds are not met
Step Down	Same first-time, target-tract, or military eligibility as First Step	An affordable interest rate only, with no down payment assistance attached	Bond funding; same recapture tax language applies
Next Home	First-time and repeat homebuyers, which makes it the only IHCDA purchase product open to previous owners	DPA of 2.50% or 3.50% of the purchase price, not to exceed the appraised value, as a non-forgivable second	TBA funding; the guide attaches no recapture tax language to this product
Next Step	Existing First Place, First Step, or Step Down borrowers refinancing their IHCDA first mortgage	An affordable rate, plus the option of a new DPA second matching the current IHCDA lien amount	Bond funding; non-forgivable second, one-time opportunity

Note that the eligibility line between these products is not about credit or income first. It is about whether you have held an ownership interest in a principal residence during the three years before closing, a test that is waived entirely in targeted areas and for eligible veterans.

How The Down Payment Assistance Actually Works

The assistance is not a grant, a credit, or a discount on your first mortgage. IHCDA lends it to you as a second mortgage secured by a recorded lien and governed by a separate promissory note, with IHCDA holding title as evidence.

That second mortgage sits quietly with no monthly payment until it matures. Maturity is triggered by the first of several events listed in Section 1 of the program guide, and the list is broader than most buyers expect:

• Sale of the home. Selling during the 30-year term of the first mortgage makes the full DPA balance due and payable at closing, out of your proceeds.
• Refinancing outside IHCDA. A refinance of the first mortgage triggers repayment unless the refinance runs through a current or future IHCDA refinance program, which today means Next Step.
• Opening a home equity line of credit. The guide names a HELOC as a maturity event in its own right, so tapping equity through a line of credit calls the second mortgage due even though you have not sold anything.
• Losing primary residence status. The home must be your principal residence for the life of the loan, so converting it to a rental ends the arrangement.
• Default and foreclosure. If foreclosure proceedings begin on the first mortgage, the second matures alongside it.

All of these share one feature that deserves emphasis: the guide states flatly that there is no proration associated with the IHCDA DPA loan. You repay the full original amount whether the trigger arrives in year two or year twenty-two.

IHCDA also will not subordinate its second mortgage to anything except the original first, or a new first delivered through an IHCDA refinance program. Before you plan around future equity access, it is worth reading how a HELOC compares with a cash-out refinance, because both routes collide with this lien position rule.

What The Assistance Can Pay For

The money is more flexible than a down-payment-only grant, which is one of the genuine advantages of the structure. According to the program guide, DPA may be applied to down payment, closing costs, pre-paid items, and realtor compensation.

There are limits on how far that flexibility runs. A borrower using DPA funds is not eligible to receive any cash back at closing, except for what can be documented as an investment the borrower already made.

Layering with other assistance is permitted, provided the lien order holds. The U.S. Bank first mortgage stays in first position, the IHCDA DPA stays in second, and any additional funding that requires a lien takes third.

Income And Acquisition Limits, County By County

Every IHCDA program is capped by both an income limit and, for most products, a purchase price ceiling called the acquisition limit. Both vary by county, and the current tables carry an effective date of May 25, 2026 for First Step, Step Down, and Next Home FHA.

Marion County is the useful reference point for anyone buying in Indianapolis, and the figures below come straight from IHCDA's published limit tables:

Limit (Marion County)	1-2 person household	3+ person household	Acquisition limit
Standard, non-targeted (effective 5/25/2026)	$110,300	$126,845	$566,355
Inside a targeted census tract	$132,360	$154,420	$692,211
Next Home Conventional and Next Step (effective 5/26/2026)	$154,420 regardless of household size		No acquisition limit published

Marion County carries a "+" designation in IHCDA's table, meaning there is at least one targeted census tract inside the county. That is a meaningful detail for Indianapolis buyers, because a property inside one of those tracts raises the income ceiling by roughly $22,000 and lifts the price cap by about $126,000.

Income here is qualifying gross annual income for the borrower and any co-borrowers, not full household income in the HUD sense. Non-occupying co-signers are allowed, and the guide specifies that co-signer income is excluded from the calculation, though co-signers may not take title at closing.

Credit Score, DTI, And Homebuyer Education

Here is where a lot of online summaries state a number that IHCDA itself does not publish. The Homeownership Program Guide says only that the borrower must have a minimum FICO score meeting the requirement "set forth by IHCDA and/or the Master Servicer," and that the score must be verified with the Master Servicer.

The maximum debt-to-income ratio is handled identically, with verification pushed to the same place. U.S. Bank HFA Division serves as IHCDA's Master Servicer, so the operative credit overlay lives with the servicer and the automated underwriting findings rather than in the state guide.

Homebuyer education, by contrast, is specified with unusual precision. Fannie Mae's HomeView and Freddie Mac's Credit Wise are named as the only acceptable course certificates, and the certificate is part of the reservation package rather than something you produce at closing.

Loans also route through the agency automated underwriting systems in the ordinary way. A Fannie Mae loan must be run through Desktop Underwriter, and a Freddie Mac loan through Loan Product Advisor.

What The Lender Has To Be, And What Reservation Looks Like

You cannot bring any lender you like to an IHCDA program. The originator must be an IHCDA participating lender holding a current Mortgage Origination and Sale Agreement, which is renewed annually along with an annual fee, and IHCDA publishes the current participating lender list on its homebuyer pages.

That requirement quietly shapes your shopping. A local bank with a competitive rate sheet cannot deliver First Step or Next Home if it is not on the list, which is the single most common reason Indiana buyers discover the assistance too late to use it.

Once you have the right lender, the reservation sequence runs in a fixed order:

• Pre-screening comes first. The participating lender screens you for first-time buyer status, income eligibility, residency status, property eligibility, and whether the price clears the county acquisition limit.
• A signed purchase contract must already exist. The buyer must have a valid real estate contract in place and a signed loan application before the loan can be registered or committed.
• The lender reserves and locks in IHCDA's portal. Reservations are taken Monday through Friday between the time rates are published and 5:00 p.m. Eastern, and rate buy-downs are not allowed.
• A $250 reservation fee is paid. The fee is a flat, non-refundable $250, payable by either the borrower or the lender, and IHCDA documents cannot be dated before the reservation date.
• The reservation package is uploaded. At minimum this includes the IHCDA Homeownership Affidavit, the appraisal, the initial loan application, a tri-merge credit report for First Step and Step Down, and the homebuyer education certificate.
• An IHCDA underwriter reviews for tax code compliance. This review is separate from your lender's credit underwriting, and it either conditions the file or clears it to close.

Two timing rules deserve a place in your calendar. The Commitment Expiration Date falls 60 days after the reservation date, and once a loan is locked, the borrower cannot relock a new application for a minimum of 60 calendar days.

There are also cost caps worth knowing before you compare Loan Estimates. On bond-funded loans, the origination fee is limited to 1% and total lender fees are capped at $1,600, regardless of who is paying them.

One procedural detail catches people at the closing table: e-signatures are not permitted on IHCDA-produced documents. Plan on signing the second mortgage and second promissory note by hand.

A $280,000 Indianapolis Purchase, Line By Line

Consider a household of three buying a $280,000 home in Marion County with FHA financing. The price clears the $566,355 acquisition limit comfortably, and the household qualifies as long as combined borrower income stays under $126,845.

The assistance math is simple arithmetic on the purchase price, which is what makes it easy to plan around:

Line item	Amount	Source
Purchase price	$280,000	Assumed for this example
FHA minimum down payment (3.5%)	$9,800	Calculated
Next Home DPA at 3.50%	$9,800	IHCDA published percentage
Next Home DPA at 2.50%	$7,000	IHCDA published percentage
First Step DPA at 4% (per 9/1/2026 guide)	$11,200	IHCDA program guide
Estimated closing costs and prepaids	$8,000-$10,000 (estimated range, not a quote)	Illustrative assumption
IHCDA reservation fee	$250, non-refundable	IHCDA program guide
Cash to close, no assistance	Roughly $18,050-$20,050	Calculated from the rows above
Cash to close, Next Home at 3.50%	Roughly $8,250-$10,250	Calculated from the rows above
Cash to close, First Step at 4%	Roughly $7,050-$9,050	Calculated from the rows above

Notice what the 3.50% tier does at this price point. It lands at $9,800, which is exactly the FHA minimum down payment on a $280,000 purchase, so the assistance covers the entire down payment and leaves closing costs to be negotiated, credited, or paid from savings.

The 4% First Step figure covers the same $9,800 and pushes roughly $1,400 toward closing costs. That difference is why the percentage discrepancy noted earlier is worth a direct question to your lender rather than an assumption.

On the Loan Estimate itself, the assistance behaves differently than most buyers picture. Because it is a second mortgage rather than a discount, it does not shrink your first mortgage amount, your monthly principal and interest, or your FHA mortgage insurance premium.

What it changes is the cash you bring. The second lien arrives with its own note and its own paperwork, and the benefit surfaces in the cash-to-close arithmetic rather than in a smaller first mortgage, which is exactly why two side-by-side Loan Estimates can show identical payments and wildly different closing tables.

Before you compare that payment against what you can carry each month, run it against local carrying costs. Indiana's circuit breaker system is unusually favorable to owner-occupants, and our breakdown of Indiana's property tax caps explains how the 1% homestead cap changes the escrow half of the equation.

The Federal Recapture Tax On Bond Programs

First Step, Step Down, and Next Step are funded with mortgage revenue bonds, and bond financing carries a federal string that most buyers never encounter elsewhere. IHCDA issues a Notice to Mortgagor of Maximum Recapture Tax when final approval is issued, and it is worth filing somewhere you will find it again.

The tax applies only if you sell within nine years and only if several conditions line up at once. According to the notice text in the program guide, no recapture tax is due in any of these situations:

• You sell after nine years. Disposing of the home later than nine years after closing removes recapture entirely.
• The disposition follows a death. A transfer resulting from the borrower's death is exempt.
• A divorce transfer with no gain or loss. Transfers to a spouse or former spouse incident to divorce under Section 1041 are exempt.
• You sell at a loss. No gain means no recapture tax.

Even when it applies, the tax is capped twice over. The maximum recapture amount is the lesser of 6.25% of the highest principal amount of the federally-subsidized loan or 50% of the gain on the sale.

The actual amount then runs through a holding period percentage that rises and falls across the nine years, peaking at 100% during months 49 through 60 and dropping to zero at month 109. Your income at the time of sale drives a second multiplier, so a borrower whose income has not climbed above the applicable limit generally owes nothing at all.

What To Do Next

The order of operations matters more than the program choice here, because the reservation has to happen before closing and can only be made by an approved originator. Start by confirming your lender appears on IHCDA's participating lender list, then confirm the county income and acquisition limits against the table dated May 25, 2026.

From there, ask three concrete questions: which DPA percentage the portal is funding today, whether the property sits inside a Marion County targeted census tract, and whether you are being placed in a bond product that carries recapture exposure. Those three answers determine both your cash to close and your flexibility nine years from now.

If you are still comparing financing structures rather than programs, our Indiana mortgage guide covers the underwriting landscape statewide, and the FHA self-sufficiency test matters if you are considering a small multi-unit property. Buyers weighing a move across the state line can compare terms against Illinois IHDA down payment assistance, which is structured on a different forgiveness model entirely.

And of course, the reason to sort this out carefully is the same reason the assistance exists. Getting into ownership several years earlier is one of the most reliable levers available for building equity and generational wealth, provided the terms attached to the entry are ones you understood going in.