First Step or Next Home: the percentage is the least of it
Program and regulatory figures verified October 5, 2026. Details change; confirm your scenario with us.
Nearly every Indiana comparison stops at 5% versus 3.5% and recommends First Step. That is the right answer for some buyers and an expensive one for others.
What is the actual difference?
Five differences, and only the first one is about money. The table is assembled from IHCDA's Homeownership Program Guide dated 02/2026, its live programs page, and the STEPS Lender Matrix dated 6/3/2025.
| First Step | Next Home | |
|---|---|---|
| Assistance | 5% of purchase price | 2.50% or 3.50% |
| Based on | Purchase price | Purchase price, not to exceed appraised value |
| First-time buyer | Required* | Not required |
| Federal recapture tax | Yes — bond funded | No — TBA funded |
| Acquisition limit | Yes | FHA yes, conventional none |
| Income limit | FHA table | FHA table, or the higher conventional table |
| Forgiveness | Non-forgivable | Non-forgivable |
| Credit report copy | Required | Not required |
| AUS findings copy | Required | Not required |
| Manual underwriting | Not allowed | — |
| Lender fee cap | 1% origination + $1,600 | Not applicable |
| Homebuyer education | Conventional yes, FHA no | Conventional yes, FHA no |
* Waived in a HUD-designated targeted census tract or with verifiable military status.
How much money is actually between them?
On a $250,000 purchase, First Step's 5% is $12,500 and Next Home's 3.50% is $8,750. A difference of $3,750, which is real money and the reason First Step is the default recommendation.
It is also the entire case for First Step. Everything else on the list runs the other way.
When is Next Home the better programme?
More often than the comparisons suggest. Four situations where it is clearly right:
- You have owned a home in the last three years. First Step is simply closed to you unless you are buying in a targeted tract or have military status. Next Home has no such test.
- Your income is over the FHA table but under the conventional one. In Marion County that is the gap between $110,300 and $154,420. Next Home Conventional reaches buyers First Step cannot.
- Your purchase price is over the acquisition limit. Next Home Conventional has no price cap at all, where First Step is capped at $566,355 outside a targeted area.
- You expect to move within nine years. First Step carries federal recapture tax exposure; Next Home does not. How recapture works.
Why is one subject to recapture and the other not?
Because of how each is funded. First Step and Step Down are bond-funded, and mortgage revenue bond financing carries the federal recapture rules Congress attached to it in 1988. Next Home is TBA-funded, so those rules never apply — the STEPS matrix records it as a flat "Subject to Recapture: No."
Recapture is not a certainty even on First Step. It requires three separate things to be true at once, and plenty of borrowers never owe a penny. But it is a live exposure on one programme and a structural impossibility on the other, and for a buyer who knows they will move in five or six years that can outweigh $3,750.
Mike's read
If you are a genuine first-time buyer, buying under the limits, and you plan to stay put, take First Step. The extra assistance is worth more than the recapture risk you will probably never trigger.
If any one of those three is not true, look hard at Next Home before you let someone talk you into the bigger percentage. A programme that takes your file at 3.50% beats one that declines it at 5%, and the conventional version of Next Home quietly solves the two problems — income and price — that knock most Indiana buyers out. The conventional route.
Frequently asked questions
Should I take First Step or Next Home in Indiana?
First Step pays more at 5% of the purchase price against Next Home's 2.50% or 3.50%, so it suits a first-time buyer under the limits who plans to stay. Next Home fits better if you have owned in the last three years, if your income or purchase price exceeds the FHA table, or if you expect to move within nine years, because Next Home has no first-time buyer requirement and no recapture tax.Is Next Home subject to federal recapture tax?
No. Next Home is TBA funded rather than bond funded, and the STEPS Lender Matrix records it as not subject to recapture. First Step and Step Down are bond funded and are subject to federal recapture tax.Can I use Next Home if I already own a home?
Next Home carries no first-time homebuyer requirement, so prior ownership does not disqualify you. The property must still be your principal residence; IHCDA does not finance investment or rental property, and all homes must remain owner-occupied.How much more does First Step pay than Next Home?
On a $250,000 purchase, First Step's 5% produces $12,500 and Next Home's 3.50% produces $8,750, a difference of $3,750. Both are non-forgivable second mortgages repayable in full.Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal or tax advice. IHCDA program terms, income limits and acquisition limits are set by the Indiana Housing and Community Development Authority and change; figures here carry the date we verified them against IHCDA's published documents. IHCDA down payment assistance is a non-forgivable second mortgage repayable in full, not a grant. Federal recapture tax may apply on bond-funded loans; consult a tax advisor. Loans are subject to borrower and property qualification.