The Quick Read: It depends on whether the assistance creates a required monthly payment. A true grant has no lien and no payment, so nothing goes into your debt-to-income ratio (DTI, the share of your monthly income that goes to debt payments). A forgivable second lien also carries no payment, so it adds nothing to the monthly math. The note decides, though, not the word “grant” in the marketing.
Here is the part most buyers miss. “Forgivable grant” is not one product. People use the phrase for two different structures, and they behave differently in underwriting. Once you know which one you have, the DTI question mostly answers itself.
What Is the Difference Between a Grant and a Forgivable Second?
A grant is cash toward your required investment with nothing to repay. It is released at closing, with no lien, no interest, and no payment. A forgivable second lien is a loan secured against your home. It carries no interest and no monthly payment, and it is forgiven on a schedule if you stay current on your first mortgage.
Same outcome for your monthly budget. Different legal animal.
Across the wholesale programs Lendmire arranges files with, the grant option is 2% or 3.5% of the purchase price. The forgivable second is 3.5% of the lesser of the price or the appraised value. The grant has no lien. The forgivable second does, and it is forgiven after the first 36 or 60 on-time first-mortgage payments, depending on the version. A 90-day-or-greater delinquency breaks the clock.
HUD, which sets the rules for FHA loans, treats the two differently on paper. Its handbook defines a gift as a contribution with no expectation of repayment, per the HUD Handbook 4000.1 Glossary. Anything secured by a lien is secondary financing, even when it never requires a payment and even when it is forgiven later. A forgivable lien is therefore a loan that happens to disappear, not a grant.
How Does a Lender Decide What Goes Into Your DTI?
The lender reads the note and asks one question: does it require you to pay something each month? If yes, that payment goes into your ratios. If no, there is no payment line to count.
Your total housing payment on an FHA loan covers principal and interest, taxes, homeowners insurance, mortgage insurance, and any association dues. It also includes payments on acceptable secondary financing. The word that matters is payments. A second lien with no required payment contributes zero to that list.
There are two ratios. The front-end ratio compares your housing payment to your income. The back-end ratio adds your other debts, such as car loans, credit cards, and student loans. Both can be affected by a repayable second. Neither is affected by a payment-free one.
A quick word on limits. For manual underwriting on FHA, the standard ratios are 31% for housing and 43% for total debt. Automated underwriting often approves buyers above those numbers when the rest of the file is strong. The assistance options Lendmire arranges follow the automated finding. USDA and HUD-184 set their own limits and allow exceptions with compensating factors, such as stronger credit or reserves. USDA’s guaranteed loan handbook, Chapter 11 explains that total debt includes housing costs plus other monthly credit obligations, and it describes how waivers work. Those limits have been revised over time, so read the current chapter rather than relying on a number from a blog.
Which Structure Counts and Which Does Not?
Only a repayable second adds a payment to your DTI. The grant and the forgivable second do not. Every structure that carries a lien still matters for other reasons, covered below.
| Structure | Monthly payment? | Adds to DTI? | Lien on the home? |
|---|---|---|---|
| Grant | None | No | No |
| Forgivable second | None | No | Yes |
| Repayable second | Yes | Yes | Yes |
| Refinance-cost second | Yes | Yes | Yes |
The repayable second is a real loan. It is interest-bearing, with a 30-year amortization and a balloon due in year 10. It comes with its own disclosures. Because it requires a monthly payment, the lender counts it. The refinance-cost second, used on an FHA refinance, follows the same repayment terms and the same logic.
For buyers whose DTI is already tight, this matters a great deal. The forgivable structure helps with cash to close without squeezing the ratio. The repayable structure helps with cash to close but takes a bite out of the ratio, which can reduce the loan amount you qualify for.
Why Can a No-Payment Lien Still Matter?
A lien with no payment is invisible to your DTI but not to the rest of the file. It shows up in three places: combined leverage, title, and what happens when you sell or refinance.
Combined leverage. The lender adds the second lien to the first when measuring total loan-to-value. Special treatment exists for secondary financing from governmental entities and certain nonprofits. A HUD mortgagee letter says qualifying secondary financing from governmental entities, HOPE grantees, and HUD-approved nonprofits has no maximum combined loan-to-value. That carve-out applies only to those providers. It is not a general rule for every assistance product.
Title. A lien means a recorded document, usually a subordinate deed of trust. It sits behind your first mortgage. Your closing paperwork gets a little longer.
Selling or refinancing. If you sell or refinance before the forgiveness period ends, the remaining lien generally has to be dealt with at that point. The terms live in the note and the deed, so read them before you sign.
None of this is a reason to avoid a forgivable second. It is a reason to know that “no payment” and “no effect” are different statements.
Does the Provider of the Money Change the Answer?
Yes. The first mortgage program decides who is an acceptable source of gifts or secondary financing. For FHA, HUD defines a Governmental Entity as a federal, state, or local agency or instrumentality, and it treats HUD-approved nonprofits as a separate category. Both are spelled out in the glossary linked above. A provider that fits neither category is a problem, however friendly the marketing sounds.
A gift cannot carry conditions. A donor may borrow the funds, as long as you have no obligation to the source. If a “gift” comes with strings, a lender will reclassify it as financing. Employer-funded and lender-funded “grants” fall into the same trap, because the source and the conditions decide the treatment.
The programs Lendmire arranges avoid most of this, because they are structured and documented as either a grant or a lien from the start. If you find assistance elsewhere, ask for the note, the award letter, and the program rules before you build a budget around it.
What About USDA and HUD-184 Loans?
The grant pairs with FHA first mortgages only. The forgivable and repayable seconds also pair with USDA and HUD-184 first mortgages. So if you are buying with USDA or the Section 184 Indian Home Loan Guarantee Program, you are looking at the second-lien structures, and the same payment test applies.
With USDA, the second-lien options carry no income limit of their own. A USDA first mortgage still brings USDA’s own income limits. Ratios apply to total debt, and exceptions need compensating factors.
Section 184 has its own character. The program has no income limit and no minimum credit score. It lists a DTI of no more than 41%, or up to 43% with two or more compensating factors. Tribal assistance is often a grant, so there may be no payment to count. Always confirm that in the award documents. The assistance options Lendmire arranges carry their own credit floors on top of the program’s.
A Buyer Scenario, Without the Dollar Signs
Picture a repeat buyer purchasing a home with an FHA first mortgage. Their DTI is already near the top of what automated underwriting tends to accept, mostly because of a student loan and a car payment.
Run the file three ways.
With the grant. The assistance covers part of the required 3.5% investment. No lien, no payment. The housing payment is the first mortgage and nothing else. DTI is unchanged, and the buyer has less cash to bring to closing.
With the forgivable second. The assistance is 3.5% of the lesser of price or value. It sits as a lien, but it requires no payment. DTI is again unchanged. The buyer now has a recorded second lien that needs 36 or 60 on-time payments to disappear.
With the repayable second. The buyer gets 3.5% or 5%, with the 5% option also covering closing costs. But the second requires its own monthly payment. That payment lands in both ratios. For this buyer, it could be the difference between approval and a smaller loan.
Same house, same income, same credit. Two different DTI results, depending only on the structure: the grant and the forgivable second leave DTI unchanged, while the repayable second changes it. That is why two buyers with identical profiles sometimes qualify for different amounts.
One more fact on the grant. It has an income test: household income at or below 140% of area median income. That test is waived if you fall into a qualifying category, such as a first responder, educator, medical worker, civil servant, military member, first-time buyer, or a buyer in an underserved census tract. You do not have to be a first-time buyer. No option in the network requires it.
What Happens If You Lose the Forgiveness?
If you sell, refinance, or move out before the forgiveness period ends, you generally forfeit the forgiveness on the remaining balance. The lien then has to be settled. The exact mechanics are in your note and deed, and they vary by program.
Missing first-mortgage payments can also interrupt the clock, since forgiveness depends on on-time payments. A 90-day-or-greater delinquency is the stated break point on the forgivable second.
For your DTI, losing forgiveness usually means a payoff event, not a new monthly payment. That is the difference between a forgivable second and a repayable one. The forgivable lien either disappears or comes due. The repayable one bills you every month from day one, with a balloon in year 10.
Assistance of any kind is for an owner-occupied primary residence only. If you plan to rent the home out or move out early, the structure becomes a bad fit.
What Does Assistance Not Fix?
Assistance helps with cash to close. It does not erase debts you already carry. A student loan, a car note, or a credit card balance stays in your back-end ratio no matter which structure you choose.
DTI is also not the only test. Lenders look at credit, income stability, cash for closing, and the property itself. The grant requires a 620 credit score. The forgivable second requires 640, and the repayable second requires 660. The second-lien options allow blended scores in some cases, but they require automated approval. A buyer can clear DTI and still miss on credit. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
The three assistance programs also do not stack. You cannot combine one with another down payment assistance program, and a mortgage credit certificate is not permitted with the second-lien options. The grant also cannot be paired with FHA High Balance, FHA $100 Down, or several other niche FHA products.
The grant is not offered in Washington. Lendmire is licensed for consumer lending in 16 states, so availability depends on where you are buying.
Is Most Assistance a Grant?
No. Most assistance in the market is a second mortgage, and grants are a small share. That is the finding of Urban Institute and Down Payment Resource research, which shows second mortgages as the dominant form. State housing finance agency programs come as amortizing repayable seconds, deferred or forgivable seconds, and grants. Programs with the same name can be built differently, so you cannot guess from a brand name.
Key Terms Defined
DTI (debt-to-income ratio): The percentage of your gross monthly income that goes toward debt payments, including your housing payment.
Lien: A legal claim against your home that secures a loan. It is recorded on title and must be paid or released when you sell.
Secondary financing: Any second loan used to fund part of your purchase, secured behind your first mortgage.
Combined loan-to-value: The first mortgage plus any second lien, divided by the home’s price or appraised value.
Balloon: A lump sum due at the end of a loan term, rather than spread across monthly payments.
AUS (automated underwriting system): The software a lender uses to review your file and issue an approval finding.
What Should You Ask Before You Commit?
Use this checklist when you talk to a loan officer.
1. Is this a grant or a lien? Ask to see whether a note and deed of trust are involved.
2. Does the note require a monthly payment? If yes, ask how it is counted in both ratios.
3. What are the forgiveness terms? Ask whether it is 36 or 60 payments, and what breaks the clock.
4. What is my maximum purchase price with and without the assistance? Seeing both numbers shows the real effect on your DTI.
5. What are the occupancy and sale terms? Know what happens if you sell or refinance early.
6. Who is the provider? Confirm it fits the first mortgage program’s rules.
7. What do I need to bring? The grant requires an HUD-approved homebuyer education course, which you pay for up front and get credited back at closing.
Ask for the answers in writing. Build the assistance into your pre-approval from the start, not as an afterthought once you have an offer in.
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. This is not a commitment to lend.
Frequently Asked Questions
Does a true grant ever count against my DTI?
No. A grant has no lien and no repayment, so there is no payment to include. It simply covers part of your required investment. It can reduce the amount you need to bring to closing, but it does not change your monthly ratios.
If a forgivable second has no payment, why does my lender still care about it?
Because it is still a lien. The lender counts it toward combined loan-to-value, it appears on title, and the remaining balance generally has to be settled if you sell or refinance before forgiveness. It stays out of your DTI but not out of the file.
Does a repayable second always hurt my DTI?
It adds a monthly payment, so yes, it enters both ratios. Whether that hurts depends on how much room you have. A buyer with a low ratio may absorb it easily. A buyer already near the limit may qualify for less. The repayable options also require automated approval, and manual underwriting is not allowed.
Can I use assistance on a second home or rental?
No. Assistance is for an owner-occupied primary residence only.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify. For the grant, being a first-time buyer is one of several qualifying categories that can replace the 140% area-median-income test. The second-lien options carry no income limit beyond USDA’s own on a USDA 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
3. Urban Institute and Down Payment Resource research
This article is part of Lendmire’s First Time Home Buyer series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Seller Fund Your DPA When You Are Competing Against Cash Buyers? · Does DPA Have to Be Repaid When You Refinance the First? · DTI Rules for Grants, Forgivable Seconds and Repayable DPA Loans
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.