The Quick Read: It depends on whether the second loan carries a required monthly payment. A repayable second with a monthly payment counts in your debt-to-income ratio (DTI). A forgivable second with no payment does not add a monthly amount, and a grant adds nothing at all. Even a no-payment second is still a lien on your home, and the lender still sees it.
What DTI Actually Measures
DTI is your monthly debt payments divided by your gross monthly income. The Consumer Financial Protection Bureau describes it that way and notes that different loan products and lenders set different limits.
Two versions matter. The front-end ratio looks only at housing costs: the first mortgage payment, taxes, insurance, mortgage insurance, and association dues. The back-end ratio adds everything else, such as car loans, student loans, and credit card minimums.
A second mortgage payment lands in the housing costs. So it pushes both ratios up. That is why the structure of the assistance matters more than the headline percentage.
The rule is simple. What counts is the payment the lender is required to include. If the note says you owe a payment each month, it goes in. If the note says no payment is due, no payment goes in.
The Four Shapes, Side by Side
Across the wholesale programs Lendmire places files with, down payment assistance comes in four shapes. Each behaves differently in the ratio. Program details come through wholesale lenders, subject to program guidelines and full underwriting.
| Shape | Monthly payment? | Adds to DTI? | Watch-out |
|---|---|---|---|
| Grant | None | No | Income or category test; education course |
| Forgivable second | None | No payment added | Still a lien until forgiven |
| Repayable second | Yes | Yes | Balloon due in year 10 |
| Refinance-cost second | Yes | Yes | Same repayment terms as the repayable second |
Notice that the table answers a narrower question than “is it assistance?” The same buyer can see a very different ratio depending on which row applies.
The grant: nothing to repay
The grant option is 2% or 3.5% of the purchase price, applied toward the FHA minimum investment. It is released at closing. There is no lien, no payment, and no interest. Your DTI never sees it.
The grant is for FHA first liens only. It requires a credit score of 620 and an HUD-approved homebuyer education course. Eligibility works one of two ways: household income at or below 140% of area median income, or membership in a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers in underserved census tracts. It is not offered in Washington. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The forgivable second: no payment, but still a loan
This option is 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-lien payments, depending on the version. Credit floor is 640.
No scheduled payment means nothing gets added to your monthly debt. But call it what it is: a loan secured by your home until the forgiveness period ends. Federal housing guidance has long treated this kind of financing as secondary financing, not a gift. HUD’s older Handbook 4155.1 says so directly, even for “soft” or “silent” seconds with forgiveness features. That handbook has since been superseded, so treat it as background on how the rules think about these loans.
The repayable second: a real payment
This option is 3.5% or 5% of the lesser of price or appraised value. At 5%, it also covers closing costs and prepaid items. It is a true second loan. It bears interest, requires a monthly payment, amortizes over 30 years, and has a balloon due in year 10. Credit floor is 660.
That monthly payment goes into your DTI. No workaround exists, and no sensible lender would offer one. It is also a separate loan with its own disclosures, including a balloon disclosure.
The refinance-cost second
For an FHA refinance, a second of 1% to 3.5% of the balance can cover closing costs. Combined leverage can reach 104%. It follows the same repayment terms as the repayable second, so the payment counts the same way. Credit floor is 660.
Why a Repayable Second Counts
The logic is plain. A lender asks whether you can afford every required payment on the home. A second loan with a required payment is one more payment.
The government loan programs say this in their own rules. Their guidelines count subordinate liens as part of the monthly housing expense, alongside first mortgage principal and interest, taxes, insurance, mortgage insurance, and association dues. FHA’s rules for seconds from government agencies follow a similar idea: the payments on the insured mortgage and the second lien, plus other recurring charges, cannot exceed what you can reasonably repay.
Conventional loans work the same way. The principle holds across loan types.
Picture a renter with solid income and a modest car payment. Without assistance, the ratio sits comfortably inside the program’s limits. Add a repayable second at 5% of the price, and the new payment pushes the back-end ratio up. For some buyers that is a small bump. For others, it is the difference between an automated approval and a manual review. The practitioner view: run the ratio both ways before choosing the structure.
One more point. The repayable option does not allow manual underwriting. The file needs an automated underwriting approval. A buyer whose ratio only works with a manual review is a better fit for another structure.
Why Forgivable and Grant Money Often Doesn’t Count
With no required payment, there is nothing to add. That is the entire reason. A grant has no payment because there is no loan. A forgivable second has no payment because the note defers all repayment unless you break its terms.
State housing finance agency programs generally fall into the same family of structures: forgivable grants, zero-interest deferred-payment seconds, and full-interest amortizing seconds. The first two carry no required monthly payment. The third does.
Be careful with the word “usually.” No one rule covers every file. The program’s own guidelines, the first-lien program, and the lender’s review all shape how a given note gets treated. That is especially true for deferred loans that accrue interest or start payments later in the term. If a note ever begins requiring a payment, ask the lender in writing how that payment is treated in the ratio. Do not assume.
Exceptions and Traps
A silent second is not invisible. The lender must know about it. Federal housing rules require disclosure of secondary financing at application. It also counts in combined loan-to-value, which is the total of all liens divided by the home’s value. Some government-backed programs even carve out a specific exception for soft seconds on combined loan-to-value, because they are counted and need a rule to allow them.
Forgiveness is conditional. The forgivable second is forgiven only after the on-time payments on the first lien. Under the structure Lendmire arranges, a 90-day or longer delinquency breaks that. Selling or refinancing early can also bring the lien due before forgiveness is complete.
Deferred is not the same as free. Some deferred seconds in the wider market accrue interest while payments wait. That does not raise your monthly DTI, but it raises the payoff later. The Urban Institute has written about how silent seconds can work in practice, including how the structure affects what a buyer keeps at sale.
Nothing stacks. No option can combine with another down payment assistance program. A mortgage credit certificate is not allowed with the second-lien options. Each file gets one assistance structure.
Primary residence only. Assistance is for an owner-occupied primary residence. Second homes and rentals are not eligible.
Tribal and state programs are separate. The HUD-184 loan guarantee does not itself provide down payment assistance, per the Section 184 handbook. HUD points borrowers toward their tribe or state housing finance agency for help. The forgivable and repayable seconds Lendmire arranges can pair with an HUD-184 first lien, but they are a different source of money.
Ratios Aren’t the Only Thing a Second Lien Touches
Buyers often fix on DTI and miss three other effects.
1. Combined loan-to-value. The second adds to total leverage. The refinance-cost option allows combined leverage up to 104%. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
2. Proceeds at sale. A repayable second is paid off from your proceeds. A forgivable one is paid off only if you sell or refinance before it is forgiven.
3. The balloon. The repayable second comes due in year 10. Plan for a sale, a refinance, or a payoff before then. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Think of it this way: DTI decides whether you qualify today. These three decide what the loan costs you later.
The FHA Layer Underneath
Everything above sits on top of a first mortgage. FHA requires a minimum 3.5% investment, with first-lien leverage up to 96.5%. An upfront mortgage insurance premium can be financed into the loan, and annual mortgage insurance applies by tier. One-unit FHA loan limits vary by county.
Those insurance charges are part of the first mortgage payment, so they are already in your ratio before any second lien enters. FHA manual-underwriting ratios are 31/43. Automated approvals commonly allow more, and the assistance options follow the automated finding. Confirm current limits with your loan officer, because USDA and FHA ratio standards have shifted across handbook versions.
Which Shape Fits Your Situation?
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify for these options, and the second-lien shapes have no income limit beyond USDA’s own on a USDA first lien.
- Tight ratio, thin savings: the grant adds no payment. Check the 140% area-median-income test or whether a category applies to you.
- Solid ratio, want help with cash: the forgivable second adds no payment, and you stay on the hook only through the forgiveness period.
- Need closing-cost help too: the repayable second at 5% covers it, but you take on a payment and a year-10 balloon.
- Lower credit score: note the floors. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Blended scores can help in some second-lien files, subject to guidelines.
A common mistake is choosing the largest assistance percentage without running the ratio. A bigger repayable second can price you out of the very loan it was meant to unlock.
How to Find Out How Yours Will Be Treated
Ask three things before you commit.
1. Does the note require a monthly payment, now or later? Get the answer in writing.
2. What happens at sale, refinance, or a missed payment? Ask when the loan comes due.
3. Which ratio standards apply to my first lien? Request the ratios with and without the second.
Expect the file to include the second’s note, the deed of trust or mortgage, and documentation from the provider. Review Lendmire’s down payment assistance programs to see which shapes pair with your first lien. If you want more detail on how a repayable second moves your ratio, Lendmire’s piece How a Repayable Down Payment Assistance Second Affects Your DTI goes deeper.
Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Debt-to-income ratio (DTI): Your monthly debt payments divided by your gross monthly income.
Second lien: A loan secured by your home that sits behind the first mortgage in repayment priority.
Forgivable second: A second lien with no interest or payment that is forgiven if you meet its terms, such as on-time payments for a set period.
Balloon payment: A large remaining balance due all at once at a set point, such as year 10.
Combined loan-to-value (CLTV): All the loans on the home added together, divided by its value.
Silent (soft) second: A second lien with no required monthly payment.
Frequently Asked Questions
Does a deferred second mortgage count in DTI?
Usually not, because no monthly payment is due. But the lien still counts in combined loan-to-value. If the note starts requiring payments later, ask the lender how that payment is treated, since program and lender rules differ.
Does forgiveness change my DTI?
No, because a forgivable second with no payment never added to it. Forgiveness changes what you owe on the lien, not your ratio. It happens only if you meet the terms, such as the on-time first-lien payments.
Can the second lien keep me from qualifying?
Yes, if it is a repayable second. Its payment raises your ratio, and the repayable option requires an automated approval. A grant or forgivable second adds no payment, so ratio problems are less likely, though credit and income rules still apply.
Can I use assistance on a second home or rental?
No. These options are for an owner-occupied primary residence only.
Do I have to be a first-time buyer?
No. None of the options requires you to be a first-time buyer, so repeat buyers can qualify. The grant is 2% or 3.5% of the purchase price with nothing to repay, and it requires an FHA first lien, a credit score of 620, homebuyer education, and household income at or below 140% of area median unless a qualifying category applies. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
If you are buying a primary home and want to see whether a down payment assistance option fits your file, Lendmire can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage, through wholesale lenders and subject to program guidelines and full underwriting. These options apply only to an owner-occupied primary residence. Call 828-256-2183 or request a quote to start. This is not a commitment to lend.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps home buyers in 16 states pair an FHA, USDA or HUD-184 first lien with a down payment assistance option arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Consumer Financial Protection Bureau, What is a debt-to-income ratio?
2. HUD Handbook 4155.1, Chapter 5, Section C
3. Urban Institute, Beyond Down Payment Assistance
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How To Qualify For Down Payment Assistance As A Repeat Buyer · Smart Ways to Start Saving for a Down Payment · Understanding Mortgage Rates: Predictions and Trends for 2024
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.