The Quick Read: It depends on the form the assistance takes. A grant has nothing to repay. A forgivable second lien disappears if you keep the home as your primary residence through the full schedule. A repayable second lien is a real loan with a monthly payment and a balloon due in year 10. Read the paperwork before you pick, because the word “assistance” covers all three.
What Are the Four Shapes of Assistance?
Down payment assistance is not one product. Across the wholesale programs Lendmire places files with, it shows up in four shapes, and each has a different answer to the repayment question. All four sit on top of a government first mortgage (FHA, USDA or HUD-184, depending on the option) and are for owner-occupied primary residences only.
| Shape | Owe it back? | Monthly payment? | Credit floor |
|---|---|---|---|
| Grant | No | None | 620 |
| Forgivable second | No, if you stay the full term | None | 640 |
| Repayable second | Yes | Yes | 660 |
| Refinance-cost second | Yes | Yes | 660 |
Terms are subject to program guidelines and full underwriting, and every file is reviewed individually. The credit floors reflect the lowest representative score among borrowers, and the second-lien options allow a blended score in some cases.
Three of these four are worth walking through in detail. The fourth, the refinance-cost second, only applies later, if you refinance an FHA loan.
The Grant: Nothing to Repay
The grant option is the cleanest. It provides 2% or 3.5% of the purchase price toward the FHA minimum investment, released at closing. There is no lien, no interest and no payment. Nothing to repay.
The catch is the eligibility test. The grant requires household income at or below 140% of the area median income, unless a qualifying category applies. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers purchasing in an underserved census tract. An HUD-approved homebuyer education course is also required. The grant pairs with FHA first liens only, and it isn’t offered in Washington.
Notice what’s missing from that list: a first-time buyer requirement. A repeat buyer moving up can qualify through income or through a category such as teaching or nursing.
This is the shape closest to what HUD calls a gift. HUD Handbook 4000.1 defines a gift as a contribution of cash or equity with no expectation of repayment. Anything secured by a lien is secondary financing instead, which matters for the next two shapes.
The Forgivable Second: Repaid Only If You Leave Early
A forgivable second is a loan that turns into a gift on a schedule. It equals 3.5% of the lesser of the purchase price or appraised value. It carries no interest and no monthly payment. After the first 36 or 60 on-time first-mortgage payments (depending on the version), with no 90-day-or-greater delinquency, the lien is forgiven in full.
Until that point, though, it is a recorded lien on your home. If you sell, refinance, pay off the first mortgage or stop living there as your primary residence before the schedule ends, you should expect the balance to come due. Staying put is the price of forgiveness.
This option pairs with FHA, USDA and HUD-184 first liens, on one- and two-unit homes. It has no income limit beyond USDA’s own on a USDA first lien, and no homebuyer counseling requirement. Manual underwriting is allowed.
Here’s the practical read. If you expect to stay in the home for the forgiveness period, this shape behaves much like a grant. If your job, family or plans might move you sooner, treat it as a loan you could owe.
The Repayable Second: A Real Loan
The repayable second lien is exactly what the name says. It is 3.5% or 5% of the lesser of the purchase price or appraised value. At 5%, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It is interest-bearing, carries a monthly payment, amortizes over 30 years, and has a balloon due in year 10. It gets its own loan disclosure and a separate balloon disclosure.
Two things follow from that.
First, the payment counts. A second with required monthly payments adds to your housing payment when a lender qualifies you, so it can tighten your debt-to-income picture. A deferred or forgivable second with no required payment generally doesn’t add to it.
Second, the balloon is a planning item. By year 10 you would sell, refinance or pay it off. The first-lien rules that apply to your loan matter here: for USDA, HB-1-3555 Chapter 6 says a down payment assistance loan cannot be rolled into a new guaranteed refinance. It must be subordinated to the new loan or paid in full.
This option has the broadest first-lien fit: FHA, USDA and HUD-184, with high-balance first liens allowed and no income limit beyond USDA’s. Manual underwriting isn’t allowed.
When Does Repayment Get Triggered?
A lien-based second comes due on a trigger event. Common ones are a sale, a refinance, a payoff of the first mortgage, a transfer of title, and moving out of the home as your primary residence. Moving out while keeping the home as a rental is the one people forget. The assistance exists for owner-occupants, and converting to a rental defeats its purpose.
Public programs spell out the same pattern. The Texas State Affordable Housing Corporation, for example, describes selling, refinancing or transferring within the term as a repayment trigger on its forgivable lien, and it attaches a short refinance-or-payoff condition even to its grant. That’s one agency’s design, not a rule for every program, but it shows why conditions deserve a close read.
Edge cases deserve a conversation with your loan officer before closing: divorce, adding or removing a borrower on title, death or inheritance, and short sales. Programs treat these differently, and the note and program agreement are where the answer lives.
How Do the Four Compare for the Same Buyer?
Picture one buyer, one home and the same percentage of assistance, then ask what happens at different points.
| Situation | Grant | Forgivable | Repayable |
|---|---|---|---|
| Stay past the schedule | Nothing owed | Forgiven | Payments continue |
| Sell in year 2 | Nothing owed | Balance due at sale | Balance due at sale |
| Refinance in year 5 | Nothing owed | Forgiven (5-year) or due (if earlier) | Balance due |
| Reach year 10 | Nothing owed | Forgiven | Balloon due |
The point isn’t that one shape wins. A forgivable second costs you nothing monthly and nothing at the end if you stay, but it can cost you if plans change. A repayable second costs you every month, but it’s usable by buyers who don’t meet the grant’s income or category tests.
A buyer with thin savings and a stable plan to stay a decade often does well with the forgivable or grant shape. A buyer who expects to move in a few years might prefer the grant, where nothing is secured against the home. A buyer who needs closing-cost help on top of the down payment may find the repayable 5% structure is the one that covers it.
Is It Really a Grant? Reading the Label
Some products marketed as grants are really forgivable loans. The word on the flyer doesn’t settle it. The documents do.
Look for these:
- A promissory note. If there’s one, it’s a loan, even at zero interest.
- A recorded deed of trust or mortgage. A lien on title means the assistance is secured financing.
- A program agreement or occupancy affidavit. These spell out the occupancy period and the triggers.
- A schedule. Forgiveness over 36 or 60 payments means you’re in forgivable territory, not grant territory.
A true grant, like the option described above, is released at closing with no lien. If you see a lien, you’re looking at a second mortgage.
Who Can Use Assistance, and Who Can’t?
No assistance option in the network requires a first-time buyer. Repeat and move-up buyers qualify. The three-year first-time definition is only one of the grant’s qualifying categories.
What’s required is that the home is your owner-occupied primary residence. Second homes, vacation homes and rental or investment properties are out. The options don’t stack with each other or with another down payment assistance program, and a mortgage credit certificate isn’t permitted with the second-lien options.
Research shows many buyers could use help and don’t. An Urban Institute analysis found that government-sourced assistance use among FHA borrowers has grown over the past decade and a half.
The FHA Loan Underneath
Assistance reduces what you bring to the table, but the first mortgage still has its own costs. FHA requires a minimum investment based on the lesser of price or appraised value, which means first-lien leverage stays below the full purchase price. There is an upfront mortgage insurance premium based on the base loan, which can be financed into the loan, and an annual premium that varies by loan size, term and leverage. The 2026 one-unit FHA loan limits run from $541,287 to $1,249,125 depending on the county.
A forgivable or repayable second adds to the total debt secured against the home. HUD defines combined loan-to-value as the base loan plus the outstanding principal of all subordinate mortgages, divided by adjusted value. That matters at sale, because a lien-based second comes out of your proceeds.
Common Mistakes
Assuming forgivable means free. It’s free only if you finish the schedule. Early exit can turn it into a payoff.
Ignoring the balloon. A repayable second is due in year 10. Plan for it the day you sign.
Skipping the refinance question. If you might refinance in a few years, ask how the second is treated before you accept it.
Mixing up Section 184 and assistance. HUD’s own handbook says the Section 184 program guarantees loans but doesn’t itself provide down payment assistance or grants. Any assistance on that loan comes from a separate provider, and its repayment terms come from that provider.
Believing you need 20% down. Urban Institute research found 30% of homeowners and 39% of renters believed more than 20% was required. It isn’t, for the loans described here. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
What to Ask Before You Commit
Bring these questions to your loan officer or program administrator:
1. Is this a grant, a forgivable lien, or a repayable lien?
2. What is the forgiveness period or the balloon year?
3. Does it add a monthly payment, and does that payment count in qualifying?
4. What events trigger repayment, including a refinance and moving out?
5. Is homebuyer education required, and who pays for it up front?
6. Does my income, or my occupation, fit the grant’s test?
Buyers comparing structures can also review Lendmire’s down payment assistance programs page for the full lineup.
Key Terms Defined
Grant: Assistance released at closing with no lien, no interest and nothing to repay.
Forgivable second: A zero-interest, no-payment second lien that is forgiven if you keep the home as your primary residence through the schedule.
Repayable second: A second loan with interest, a monthly payment, and a balloon due in year 10.
Combined loan-to-value (CLTV): Your first mortgage plus all other liens, divided by the home’s value.
Trigger event: A sale, refinance, payoff, title transfer or move-out that makes a lien-based second due.
Frequently Asked Questions
Does a down payment assistance grant ever have to be repaid?
Under the grant option described here, no. It is released at closing with no lien and no payment. Other public programs may attach conditions, such as a short refinance or payoff window, so read any agreement carefully. Terms are subject to program guidelines and full underwriting.
What happens if I sell before a forgivable second is forgiven?
Expect the balance to come due from your sale proceeds. The lien is forgiven only after the first 36 or 60 on-time first-mortgage payments, depending on the version. Selling, refinancing or leaving the home as your primary residence before then typically triggers repayment.
Can I refinance if I have an assistance second lien?
Often yes, but the second usually has to be paid off or subordinated. For a USDA first lien, the assistance loan can’t be included in a new guaranteed refinance. Ask how your specific note handles a refinance before you sign.
Do I have to be a first-time buyer?
No. Repeat buyers and move-up buyers qualify. The grant requires either income at or below 140% of area median income or a qualifying category, such as teacher, nurse, first responder, civil servant or military service. The second-lien options have no income limit beyond USDA’s on a USDA first lien.
Can I use assistance on a rental or second home?
No. Assistance is for an owner-occupied primary residence only.
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.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving home buyers in 16 states. Down payment assistance programs are arranged with FHA, USDA and HUD-184 first liens through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4000.1 Glossary
2. USDA Rural Development, HB-1-3555 Chapter 6
3. Texas State Affordable Housing Corporation FAQ
4. Urban Institute, Expanding Down Payment Assistance Awareness
5. 30% of homeowners and 39% of renters believed more than 20% was required
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Loan CLTV and Second Lien Rules With Down Payment Assistance · How To Qualify For Down Payment Assistance As A Repeat Buyer · Conventional Loan Requirements for a Down Payment Assistance Second Lien
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.