The Quick Read: No, it is not too good to be true, but it is not a gift in every form. Real programs exist, and some options carry nothing to repay. Others are loans: a forgivable second lien that you earn out, or a repayable second lien with a monthly payment. The real question is which shape you are being offered and what you owe.
What Is Actually on the Table?
Down payment assistance comes in four shapes. Each sits on top of a government-backed first mortgage. Across the wholesale programs Lendmire places files with, every option below is arranged through wholesale lenders, subject to program guidelines and full underwriting.
| Shape | Size | What you owe | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of price or value | Forgiven after 36 or 60 payments | 640 |
| Repayable second | 3.5% or 5% of price or value | Monthly payment, balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Repayable second terms | 660 |
Notice the sizes are percentages. Assistance is always a share of the price or value, never a fixed dollar promise. The calculation depends on your purchase and your file.
The grant. This option puts 2% or 3.5% of the price toward the FHA minimum investment. It is released at closing. There is no lien, no payment and no interest. It pairs with FHA first mortgages only, and it is not offered in Washington. You also complete an HUD-approved homebuyer education course. You pay for it up front, and the cost is credited back at closing.
The forgivable second. This is a loan, and it is described as one. It equals 3.5% of the lesser of price or appraised value, with no interest and no monthly payment. After 36 or 60 on-time payments on your first mortgage, with no 90-day-or-worse delinquency, it is forgiven. Miss that window and the lien is still there.
The repayable second. This is a real second loan with interest and a monthly payment. It amortizes over 30 years, with a balloon due in year 10. At 5%, it also covers closing costs and prepaid items. It carries its own disclosures, and it is the one to read most carefully.
The refinance-cost second. If you already own an FHA home, this option puts 1% to 3.5% of the balance toward the closing costs of an FHA refinance. Combined leverage can reach 104%. It follows the repayable terms.
That is the whole menu. Anyone offering something that looks different deserves questions.
Is It Free Money?
Only one of the four shapes has nothing to repay, and that is the grant. The other three are liens recorded behind your first mortgage. A lien is a legal claim on the home that must be cleared when you sell or refinance, or earlier under the terms.
Plenty of public programs follow the same pattern. The FDIC’s guide to state housing finance agency programs describes grants, deferred or forgivable seconds, and fully amortizing repayable seconds. Terms, amounts and eligibility vary widely by state.
Some structures also share appreciation. The Urban Institute has examined a silent second of that kind, where the lender takes a slice of the home’s gain. Ask whether anything like that is in your paperwork. The options described here do not work that way.
Here is the honest framing. A grant is a gift in plain terms. A forgivable second is a gift that you earn by staying put and paying on time. A repayable second is a loan at a smaller scale. All three can get you into a home sooner. None of them is invisible.
Who Qualifies? (Not Just First-Timers)
This is where the “too good to be true” feeling often comes from, so be direct. Nobody has to be a first-time buyer. Repeat and move-up buyers qualify across all of these options.
Income works differently by shape. The grant has an income test: household income at or below 140% of the area median income. You can skip that test if you fall into a qualifying category. Those categories are:
- First responders, current, former or entering service
- Educators
- Medical personnel
- Civil servants at the federal, state or local level
- Military personnel, current, retired, volunteer or unpaid
- First-time buyers, meaning no ownership interest in a home in the previous three years
- Buyers purchasing in an underserved census tract
The second-lien options carry no income limit, other than USDA’s own limits when the first mortgage is USDA.
The home must be your owner-occupied primary residence. Assistance does not apply to second homes, vacation homes or rentals. You also cannot stack one assistance program on top of another, and a mortgage credit certificate is not allowed with the second-lien options.
The CFPB notes that many programs target low- and moderate-income first-time buyers, while some also serve people who have owned before. Definitions of “first-time” vary by program, so ask for the written one.
Where Is the Catch?
Every option has one. Know it before you sign.
The grant’s catch is the paperwork and the pairing. You need the education course, and it only works with FHA first mortgages. It cannot combine with several FHA variants or with any other assistance program.
The forgivable second’s catch is time. Forgiveness arrives only after 36 or 60 on-time payments. If you sell or refinance before then, expect the lien to come due. Plan for staying put.
The repayable second’s catch is cash flow. The payment counts toward your qualifying ratios, which can limit how much house you can buy. The balloon in year 10 means you will need to sell, refinance or pay it off by then. Think about that date now, not later.
Everyone’s catch is the first mortgage underneath. FHA requires a minimum investment of 3.5% of the lesser of price or appraised value for scores of 580 and up. It also charges an upfront mortgage insurance premium on the base loan, which can be financed. Annual mortgage insurance also applies, and on loans above 90% loan-to-value it lasts for the life of the loan. Assistance lowers the cash you bring, not the cost of the loan structure.
Another wrinkle comes from the first mortgage rules. USDA, for example, keeps its guaranteed loan in first-lien position and limits junior liens. Its handbook chapter on closing spells out the conditions a second lien must meet, and the lender has to account for it in underwriting.
A short note on one more edge: the funds do not appear on their own. Programs have eligibility rules, and your lender must be approved to offer the option. Being aware that a program exists is not the same as being approved for it.
How Do You Spot a Bad Offer?
Past schemes are why the skepticism exists. The old seller-funded “charity” model, where a seller quietly reimbursed the money, led regulators to shut it down. Today’s legitimate options are structured very differently. Still, a few red flags are worth knowing.
- Upfront fees to “reserve” your assistance. Real options are arranged through your mortgage file, not sold separately.
- Pressure to decide today. A real program will not vanish by tomorrow morning.
- No clear provider. You should be able to say who is funding it and whether it is a grant, forgivable or repayable.
- Cash back at closing. Assistance goes toward your purchase, not into your pocket.
- Terms that change on the page. Get the second lien note and the disclosure in writing before you commit.
Independent advice helps. HUD-approved housing counselors are free or low cost. You can find one through the CFPB’s housing counselor tool. A counselor has no stake in which shape you choose.
Who Does It Fit, and Who Should Think Twice?
| It fits you if | Think twice if |
|---|---|
| Savings are thin but income is steady | You plan to move within a few years |
| You are buying a primary home | The home is meant as a rental or second home |
| You can handle the first-mortgage payment comfortably | The second-lien payment would stretch your budget |
| You are a public-service worker or buy in an eligible tract | You cannot meet the credit floor for the shape |
Here is a quick buyer picture. A renter with a stable job and little cash may find the grant ideal, since it leaves nothing to repay. A nurse moving up from a starter home may use the forgivable second and stay put for the forgiveness window. A buyer with good income but a depleted savings account might choose the repayable second, taking on the extra payment knowingly.
One more thing to weigh. Assistance can make a purchase feel affordable when the monthly budget is tight. Lower upfront cash is not the same as lower cost. Look at the full monthly picture, with and without the assistance, before you decide.
What Happens If You Sell or Refinance Early?
Each shape behaves differently when life changes.
- Grant: Nothing happens. There is no lien, so selling or refinancing triggers no payoff.
- Forgivable second: Before the 36 or 60 payments are made, expect to repay it at sale. After that, it is forgiven.
- Repayable second: It is paid at sale or refinance, or at the year-10 balloon, whichever comes first.
- Refinance-cost second: It follows the repayable terms.
Refinancing the first mortgage with a second lien in place needs the second lien lender to agree to stay behind the new loan. USDA, for example, does not let assistance loans roll into a new guaranteed refinance. They stay subordinate or get paid off. Ask about this up front.
If your income drops, the repayable second hurts most because the payment continues. The forgivable second asks only that you keep paying the first mortgage on time.
Questions to Ask Your Lender
Bring this list to the first conversation:
1. Which shape is this: grant, forgivable or repayable?
2. What triggers repayment, and when?
3. Is there a monthly payment, and how does it affect my qualifying ratios?
4. Can I see the monthly cost with and without the assistance?
5. What credit score and property type does this option require?
6. Does the lender offer this option, and are funds available?
7. What documents will I need, and is education required?
Real answers should come quickly and match what the disclosures later show. Evasive answers are a signal.
Key Terms Defined
Grant-style assistance: Money toward your down payment that you do not repay, released at closing with no lien.
Second lien: A second loan recorded behind your first mortgage, paid off after the first if you sell or refinance.
Forgivable second: A second lien with no interest or payment that is erased after a set number of on-time first-mortgage payments.
Balloon payment: A large lump sum due at the end of a loan term, in this case year 10 on the repayable second.
Minimum required investment: The share of the home’s value FHA requires you to put in yourself.
Area median income: The middle household income for your local area, used to test grant eligibility.
Frequently Asked Questions
Is down payment assistance a scam?
No. Real programs are regulated and arranged through your mortgage file. Scams ask for upfront fees or promise cash with no paperwork. Be wary of anything that cannot name its provider. An HUD-approved counselor can help you verify an offer.
Do I have to be a first-time home buyer?
No. None of the options described here require it. Repeat and move-up buyers qualify. The three-year first-time definition is only one of the grant’s qualifying categories, alongside categories like educators and first responders.
Can I use it on a rental or second home?
No. Assistance is for an owner-occupied primary residence only.
Does using assistance hurt my chances of approval?
It depends on the shape. A repayable second adds a monthly payment that counts toward your qualifying ratios. Grants and forgivable seconds add no monthly payment. Each file is underwritten individually, subject to lender guidelines.
Can I combine two assistance programs?
No. Nothing stacks with another assistance program. A mortgage credit certificate is also not permitted with the second-lien options.
The Bottom Line
Assistance is neither a trick nor a handout. It is a tool with four shapes, and the right one depends on how long you will stay, how tight your budget is and what you can document. 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. You can start by reviewing Lendmire’s down payment assistance programs, subject to program guidelines and full underwriting. This is not a commitment to lend.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, USDA and HUD-184 purchase loans with down payment assistance options through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. FDIC – State HFA down payment assistance guide
2. Urban Institute – Beyond Down Payment Assistance
3. CFPB – Special loan programs
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 Much Down Payment Assistance Can You Get? · How to Qualify for Down Payment Assistance When You’re Self-Employed · Can A Repeat Buyer Get Down Payment Assistance On A Primary Home?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.