The funds will be distributed over the new two years and will be available for first-time buyers and existing homeowners looking to buy new-build property
Sturgeon said the scheme will help buyers while boosting the construction industry.
Speaking at the Homes for Scotland Annual Conference Sturgeon said: “People in Scotland who should rightly be able to afford a mortgage are still facing real challenges buying a home.
“We are well aware of the challenges that people face and want to continue to do all we can to help.
“The £120m funding announced today will not only help people to buy their first home, they will also help ‘second-steppers’ to be able to sell their home and to move to another property.
“But this is not only about helping people to buy houses. Our actions are also stimulating the economy. By supporting house buying and construction, we are creating new work for the sector and supporting jobs.
“This demonstrates that in these tough financial times the Scottish Government will step in, both to help households and crucial sectors of our economy like house building.”
Jim Preston, chairman of trade body Homes for Scotland, welcomed the news. Preston said: "Home building is one of the most effective ways to stimulate the economy because of its strong employment and output multiplier effects.
“With strong evidence to demonstrate the significant positive impact shared equity schemes can make, a well-designed and funded initiative could be a game changer in Scotland.
"Timing, however, is crucial and we therefore look forward to working closely with the Scottish Government to ensure this option is made available to help home buyers here without delay."
Paul Smee, Council of Mortgage Lenders Director General added: "We welcome and support the Scottish Government's efforts to stimulate the house-building sector and we look forward to working constructively with the government to help deliver this scheme."
