The Quick Read: What gets documented, counted and disclosed depends on the legal paper behind the assistance, not its marketing name. A grant leaves no lien and no payment. A forgivable second is a recorded loan with no payment. A repayable second is a recorded loan with a monthly payment that the lender must count against your ratios. Each type carries its own paperwork at closing and its own tasks afterward.
Key Takeaways
- The label on the brochure matters less than the document you sign. A note and a recorded lien make it a loan, even at zero interest.
- Only the repayable second (and the refinance-cost second, which follows its terms) adds a monthly payment to your qualifying ratios.
- Grants release at closing with nothing to repay. Forgivable seconds clear only after on-time first-lien payments. Repayable seconds run to a balloon in year 10.
- Every option is for an owner-occupied primary residence only. No option can be combined with another down payment assistance program.
What Does “Reporting” Mean for Down Payment Help?
“Reporting” means four different things, and mixing them up causes most of the confusion. Here is how each one plays out.
1. Underwriting. What the lender counts as income, assets, debt or leverage.
2. Closing paperwork. What shows up on your loan estimate and closing disclosure.
3. Records. Whether anything is recorded against the title.
4. After closing. What you must do to keep the assistance, and what you should get back when it ends.
Across the wholesale programs Lendmire arranges, the assistance comes in four shapes. Each pairs with a government-backed first mortgage: FHA, USDA or HUD-184, depending on the shape. The first loan does the heavy lifting. The assistance fills the gap between what you have saved and what the first loan requires.
You can read more about the structures on Lendmire’s down payment assistance programs page. The rest of this piece covers how each shape is reported.
One note on who qualifies. Nobody has to be a first-time buyer. Repeat and move-up buyers qualify. The assistance is for a primary residence you will live in. A second home or rental does not qualify for any of these options.
The Four Shapes Side by Side
Start with the comparison. Details follow in each section.
| Factor | Grant | Forgivable second | Repayable second | Refinance-cost second |
|---|---|---|---|---|
| Size | 2% or 3.5% of price | 3.5% of price or value | 3.5% or 5% of price or value | 1% to 3.5% of balance or value |
| Lien on title | None | Yes | Yes | Yes |
| Monthly payment | None | None | Yes, 30-year amortization | Yes, same terms as repayable |
| What ends it | Nothing to repay | 36 or 60 on-time payments | Balloon in year 10 | Balloon in year 10 |
| Credit floor | 620 | 640 | 660 | 660 |
The size is always a percentage. For the seconds it is a percentage of the lesser of price (or balance) or appraised value. The grant is a percentage of price. Your actual dollar amount depends on your purchase.
The refinance-cost second is covered in its own section below.
How the Grant Gets Reported
The grant is the lightest file. It is 2% or 3.5% of the purchase price, aimed at the FHA minimum required investment. It is released at closing. There is no lien, no payment and no interest, and nothing to repay.
Underwriting. The lender documents it as assistance toward your minimum investment. It adds no debt, so your ratios are unaffected. The first lien is FHA 203(b) or an FHA 203(k) variant at 96.5% loan-to-value. The grant is not available with high-balance first liens. The credit floor is 620, measured on the lowest representative score among all borrowers.
Eligibility file. This is where the grant carries the most paperwork. You qualify through any one of these:
- Household income at or below 140% of area median income.
- A qualifying category: first responder, educator, medical worker, civil servant or military personnel.
- First-time buyer status, meaning no ownership interest in a residence in the prior three years.
- A property in an underserved census tract.
The lender documents whichever route you use. An HUD-approved homebuyer education course is also required for the grant. You pay for it up front, and the cost is credited back at closing.
Records. Nothing is recorded. The grant leaves no lien, so there is no release to chase later.
Limits. The grant is not offered in Washington. It cannot combine with FHA High Balance, FHA $100 Down, FHA 203(h), Good Neighbor Next Door, FHA One-Time Close or any other assistance program.
Do not assume FHA itself runs a grant program. It does not. FHA insures the first mortgage and sets rules for the assistance that sits beside it. The assistance comes from other sources, arranged through wholesale lenders.
How the Forgivable Second Gets Reported
A forgivable second is a loan that turns into a gift only if you perform. It is 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is fully forgiven after the first 36 or 60 on-time first-lien payments, with no delinquency of 90 days or more. The lien term is 30 years.
Underwriting. Because there is no payment, the second adds nothing to your monthly ratios. The credit floor is 640, or 660 on a blended score. The first lien can be FHA 203(b), FHA Limited 203(k), HUD-184 or USDA, on one or two units. There is no income limit beyond USDA’s own on a USDA first lien. Manual underwriting is allowed. No homebuyer counseling requirement applies.
Closing paperwork. You sign a note and a security instrument. The lien is recorded on title behind the first mortgage. That is the clearest sign it is a loan and not a grant. The second must stay behind the first mortgage. USDA’s lender guidance says assistance works as long as the guaranteed loan remains in first lien position. USDA also treats assistance funds as not the applicant’s own money.
After closing. Your job is to make your first-lien payments on time. The lender or program administrator tracks the count. If you sell or refinance before forgiveness, the unforgiven portion typically comes due. Staying put until the finish line is the whole plan.
At forgiveness. Ask for a written confirmation and a recorded lien release. A balance that has been forgiven but still sits on title can complicate a later sale or refinance. Calendar the month your count reaches 36 or 60 and ask for the paperwork then.
How the Repayable Second Gets Reported
The repayable second is a real second loan, and the file treats it that way. It is 3.5% or 5% of the lesser of price or appraised value. At 5% it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. The loan is interest-bearing, with 30-year amortization and a balloon due in year 10.
Underwriting. This is the one purchase option that adds a monthly payment. The lender must count that payment against your ratios, and the file follows the automated underwriting finding. Manual underwriting is not allowed on this option. The credit floor is 660, or 670 blended. High-balance first liens are allowed.
A closing-cost variant on an FHA 203(b) first lien covers the down payment, closing costs, prepaids and costs paid outside closing on the same terms.
Closing paperwork. The second gets its own disclosure and a separate balloon disclosure. The first mortgage’s closing paperwork also shows the second as subordinate financing. The program charges no lender fees on the second. You pay only prepaid interest, recording, settlement and registration fees.
After closing. You make the second’s monthly payment alongside the first. Plan for the balloon from the first day. Before year 10 arrives, you will sell, refinance or pay it off. Ask the lender what a payoff demand will look like, and keep the payoff statement when you get it.
FHA CLTV note. FHA’s rules for governmental and HUD-approved nonprofit secondary financing do not cap combined leverage. HUD Mortgagee Letter 2026-11 restates that point. The letter is mainly about credit-score models, and it leaves the minimum score thresholds unchanged. It confirms existing practice. It is not a new assistance rule.
The Refinance-Cost Second
The fourth shape is narrower. It is a second lien of 1% to 3.5% of the lesser of the current first-lien balance or appraised value. It goes toward closing costs on an FHA 203(b) refinance. Combined leverage can reach 104%.
It applies to a one-to-four-unit property, as long as the owner lives in one of the units as a primary residence. It cannot be used for a streamline refinance. It also cannot refinance an existing assistance loan. Reporting follows the repayable second: a payment, a lien, and separate disclosures.
What the Lender Documents Before You Close
A clean file moves because the paper is complete. Here is what the lender typically needs, by type.
- Your application and the automated underwriting finding.
- Proof the property will be your primary residence.
- Confirmation that no other assistance program is in play.
- Evidence of the eligibility route: income documents, a category verification, first-time status or the census tract.
- The homebuyer education certificate.
- The note and recorded security instrument.
- A credit review at the correct floor, using the blended score where it applies.
- For a USDA first lien, USDA’s own income limits.
- The payment included in your ratios.
- The separate balloon disclosure.
Minor repair escrows work the same way across the second-lien options. Non-structural repairs up to $5,000 can be escrowed at 150% of the estimate, with the completion deadline set by the lender and varying by file.
Where the General Rule Breaks
These are the edge cases that trip buyers up.
A “grant” that is really a loan. Check three things. Is there a promissory note? Is there a recorded lien? Does a schedule forgive the amount over time? If any answer is yes, you are looking at a loan, even at zero interest. The word “grant” is used loosely in marketing. The documents tell the truth.
A seller-funded “gift.” Programs that reimburse their funding from the seller have a troubled history, and FHA tightened its source rules in response. The legitimate gift is a true gift from an acceptable source, documented as such.
Blended scores. On the second-lien options, a lower-scoring co-borrower’s score can be averaged in. This works when the primary wage earner brings in at least 60% of household income and holds the higher score. The minimums are 660 for forgivable and 670 for repayable. You still need an automated underwriting approval.
Refinancing a USDA loan. USDA’s refinance guidance says a down payment second cannot be rolled into a new guaranteed refinance. It must stay subordinate or be paid in full. Plan for that before you refinance.
HUD-184. The Section 184 program itself guarantees loans and does not directly provide assistance. Tribal programs may offer their own, often structured as forgivable seconds. HUD’s Section 184 rulemaking says any junior lien must meet the conditions in § 1005.439. The forgivable and repayable seconds in Lendmire’s network can pair with an HUD-184 first lien, subject to program guidelines.
Stacking. No option in the network can be combined with another down payment assistance program, and a mortgage credit certificate is not permitted with the second-lien options. If a local program offers its own help, choose one path before you commit and confirm the details with your loan officer.
Washington. The grant is not offered there. The second-lien options may still apply, subject to program guidelines.
What Disclosure Looks Like at the Closing Table
The closing paperwork shows how a deal is built. Federal disclosure rules require that subordinate financing used for the purchase price appears on the first mortgage’s closing disclosure. A second mortgage or note must be shown with its principal amount and a short explanation.
Plain reading for each type:
- Grant: It shows as a credit. No second loan appears.
- Forgivable second: It shows as subordinate financing. You see the lien, but no payment.
- Repayable second: It shows as subordinate financing with its own disclosures, including the balloon.
Some no-interest, forgiven-on-schedule seconds can be disclosed differently from repayable seconds. Ask your loan officer which documents you will receive for your option. Compare the loan estimate against the closing disclosure line by line before you sign.
How Do You Choose Between Them?
Choose based on how long you will stay and what your monthly budget can carry. It depends on your situation, but here is a practical map.
If your monthly budget is tight. The grant and the forgivable second add no payment. The grant carries the cleanest exit, with nothing to repay and no lien. The forgivable second is a loan that you earn out of by staying.
If you might move within a few years. The grant is the safest fit. A forgivable second can come due if you leave before the schedule ends. A three-year forgivable schedule is shorter than a five-year one. Pick the one that matches your honest timeline.
If you do not meet the grant’s tests. The second-lien options have no income limit beyond USDA’s own. They suit buyers whose income is above the grant’s 140% test and who fit no qualifying category.
If you need closing-cost help. The repayable second at 5% covers closing costs and prepaids as well as the down payment. The tradeoff is a payment and a year-10 balloon. A buyer who plans to stay past year 10 should think hard about how the balloon will be paid.
If the first lien is large. Grant and forgivable options exclude high-balance first liens. The repayable second allows them. Current one-unit FHA limits run from $541,287 to $1,249,125 by county.
Public programs nationally lean toward second mortgages over grants, per Urban Institute and Down Payment Resource data. Most buyers will meet a lien at some point. Read the note before you count on the help.
The FHA Layer Underneath
The assistance sits on top of the first mortgage, so the first mortgage’s rules apply. FHA requires a minimum investment of 3.5% of the lesser of price or appraised value, with a representative score of 580 or higher. That makes the first-lien leverage 96.5%. Buyers with scores from 500 to 579 need 10%. The assistance options carry their own higher credit floors, as listed above.
An upfront mortgage insurance premium applies to the base loan. It can be financed into the loan. Annual mortgage insurance also applies and varies by loan size, term and leverage. Manual underwriting ratios on FHA are 31/43. Automated approvals often allow more, and the assistance options follow the automated finding.
Key Terms Defined
Grant: Assistance with nothing to repay, released at closing with no lien.
Forgivable second: A no-interest, no-payment second loan that is forgiven after a set number of on-time first-lien payments.
Repayable second: A second loan with interest, a monthly payment and a balloon due in year 10.
Lien: A recorded legal claim on the property that secures a loan.
Balloon: A lump sum due at the end of a loan term, after smaller payments that did not pay it off.
Combined loan-to-value (CLTV): The first loan plus all other liens, divided by the property value.
Blended score: A credit score that averages in a co-borrower’s lower score under set conditions.
Questions to Ask Before You Sign
- Is this a gift or a loan? Where is the note?
- Will a lien be recorded behind my first mortgage?
- Does the assistance add a monthly payment to my ratios?
- What triggers repayment if I sell or refinance early?
- Who tracks my on-time payment count, and what do I receive when it reaches the finish line?
- What documents will I get at closing for the assistance itself?
A good loan officer answers these in plain words. If an answer sounds vague, ask for it in writing.
Frequently Asked Questions
Does a grant show up as debt on my loan file?
No. A grant is released at closing with nothing to repay, and it leaves no lien and no payment. It does not add to your monthly ratios, though the lender still verifies the eligibility route you used.
Does a forgivable second count against my debt-to-income ratio?
Not as a payment. The forgivable second carries no interest and no monthly payment, so it adds nothing to your monthly obligations. It is still a loan with a recorded lien, and you must keep making on-time first-lien payments for 36 or 60 months to earn the forgiveness.
What does a repayable second add to my file?
It adds a payment the lender must count in your ratios. It also adds its own disclosures, including a balloon disclosure. The loan amortizes over 30 years with the balloon due in year 10. Manual underwriting is not allowed on this option, so the file follows the automated finding.
Can I use assistance on a second home or rental?
No. All of these options are for an owner-occupied primary residence. They are not available for vacation homes, second homes or rental property.
What should I get when a forgivable second is finished?
Ask for written confirmation that the balance is satisfied and a recorded lien release. The count of on-time payments is what earns forgiveness, so keep your payment history. A release that is never recorded can surface at your next sale or refinance. Raise it with the servicer as soon as you reach the 36th or 60th payment.
Next Step
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. Programs are arranged through wholesale lenders, subject to program guidelines and full underwriting. Nothing here is 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.
Investors who want the broader program framework can review how DSCR loans work.
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References
1. USDA Rural Development, Single Family Housing Guaranteed Loan Origination FAQ
2. HUD Mortgagee Letter 2026-11
3. Urban Institute and Down Payment Resource data
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: Down Payment Assistance Interested-Party Rules for Who May Provide a Second · Does a Forgivable Grant Count Against Your DTI on a DPA Loan? · DPA Co-Borrower and Education Rules When Gift Funds Are Combined
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.