Indiana Home Loan Programs for Veterans

The State of Indiana has veteran-friendly home loan programs that may include down payment assistance and exemptions from first-time homebuyer requirements for qualifying applicants. These programs are administered through the Indiana Housing and Community Development Authority (IHCDA) and are offered statewide through a network of participating lenders, helping eligible veterans access affordable financing when purchasing a primary residence in Indiana.

The First Step Program

The First Step Program is a bond-funded mortgage option that combines affordable financing with down payment assistance. Although it is primarily intended for first-time homebuyers, applicants with verifiable military status are exempt from the first-time homebuyer requirement. This means qualifying veterans may be eligible even if they have owned a home within the past three years.

The program offers a 30-year fixed-rate mortgage using FHA, Fannie Mae, or Freddie Mac guidelines. In addition to the primary loan, it provides down payment assistance equal to five percent (5%) of the purchase price.

Key features of the First Step Program include:

• 30-year fixed-rate FHA, Fannie Mae, or Freddie Mac financing
• 5% down payment assistance based on the purchase price
• A non-forgivable second mortgage for the DPA

The down payment assistance is structured as a second mortgage held by IHCDA and must be repaid in full if certain events occur. Repayment is triggered if:

• The home is sold
• The mortgage is refinanced outside an approved IHCDA refinance program
• The property is no longer used as the borrower’s primary residence

There is no proration or forgiveness over time. Because this is a bond-funded program, borrowers may also be subject to Federal Recapture Tax if the home is sold within the first nine years, a gain is realized, and income exceeds allowable thresholds.

Income limits, acquisition (purchase price) limits, and property eligibility requirements apply, and the home must be located in Indiana and used as the borrower’s principal residence.

The Step Down Program

The Step Down Program is another bond-funded mortgage option available through IHCDA. Like the First Step Program, it is structured for first-time homebuyers, but veterans with verifiable military status are exempt from the first-time homebuyer requirement. This allows eligible veterans to qualify even if they have recently owned a home.

The Step Down Program provides affordable 30-year fixed-rate financing through FHA, Fannie Mae, or Freddie Mac. Unlike First Step, it does not include down payment assistance. Instead, its primary benefit is access to a competitively structured bond-funded interest rate.

Core elements of the Step Down Program include:

• 30-year fixed-rate mortgage
• FHA, Fannie Mae, or Freddie Mac financing options
• Exemption from the first-time homebuyer rule for eligible veterans

As with other bond-funded programs, Federal Recapture Tax may apply depending on the timing of sale, income at disposition, and whether a gain is realized. Borrowers must also meet income limits, acquisition limits, and property eligibility standards, and the home must remain their primary residence.

Veteran Eligibility Under IHCDA Guidelines

IHCDA defines an Eligible Veteran as a person who has served in active military, naval, or air service, or the Indiana National Guard, and did not receive a dishonorable discharge. Eligibility may also extend to individuals otherwise eligible for VA health benefits, with verification typically provided through documentation such as a DD214.

For bond programs like First Step and Step Down, this designation removes the standard requirement that a borrower must not have owned a principal residence within the past three years. However, veterans must still meet all other program guidelines, including:

• Household income limits based on county and family size
• Acquisition (purchase price) limits
• Property and underwriting requirements

These programs are structured to expand access to homeownership while complying with federal bond and tax regulations. For qualifying veterans, the exemption from the first-time homebuyer rule provides additional flexibility when purchasing a home in Indiana.

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