The initiative, which helps people purchase a new-build home without the need for a large deposit, has supported more than 12,000 households into a new home since 2013.
Up to 4,000 more households will be given assistance due to the extension.
Housing minister Kevin Stewart said a third of the new fund will be reserved for sales from SME builders.
Mr Stewart said: “Since we introduced Help to Buy, the scheme has not only helped thousands of buyers into new homes – it has supported around 9,000 jobs.
“A third of the annual £50m budget – £18m – will be reserved for sales from SME builders, who were particularly affected by the drop in development finance after the financial crisis.
“We know house builders still see Scotland as a place to continue to develop and invest, with the latest figures showing new house completions grew by 5% over the last year.
“Housing is about more than bricks and mortar – we want to provide safe, warm homes, help create a fairer Scotland, and preserve a diverse and more resilient construction sector.”
The news has been applauded by home builders who described it as good news for buyers and Scotland as a whole.
Nicola Barclay, chief executive of Homes for Scotland, said: “This is great news on a number of different fronts as the Scottish Government clearly recognises the value and wide-ranging benefits that its Help to Buy initiative provides.
“By allocating further targeted funding until 2021, it is not only extending the opportunity of home ownership to more Scots who are currently saving to buy their own home but will also provide the much-needed confidence and certainty that housebuilding companies need to continue to invest and grow their businesses in Scotland. This positive message is fundamental to helping us work together to increase the supply of new housing.
“It is essential to remember that, as well as being directly responsible for additional new homes being built, Help to Buy is also relieving pressure on the public sector with earlier figures showing that around five per cent of purchasers have moved from social rented housing and a further five per cent were on a social housing waiting list.
“With Help to Buy providing an equity stake that is repayable to the Scottish Government, and with receipts received to date higher than projected, the scheme is already demonstrating its value as an effective housing policy driver for the delivery of new homes, enabling Scots to purchase a new-build home without the need for a large deposit, and with very little impact on the public purse.”
But Scottish Labour’s housing spokeswoman Pauline McNeill called for an urgent review of the scheme to establish if it is “fit for purpose”.
She said householders with incomes of more than £100,000 were getting help with a new home deposit and efforts must be directed to low income households.
Ms McNeil added: “We have seen instances in the past where households with incomes of more than £100,000 are getting help with a deposit for a home, which raises questions about whether the right people are benefitting from Help to Buy. The scheme must focus on those with lower incomes who just need a bit of help to own their first home.”