The Quick Read: The cost depends on the shape of your assistance, and it shows up when you refinance. A grant leaves nothing behind. A second lien stays on the home as its own debt, and a refinance has to deal with it. The real cost is the payoff, the lost forgiveness, the new closing costs, and the time you waited.
Most buyers focus on the first mortgage when they think about refinancing. That is the first thing to correct. If you took assistance as a loan, you own two debts, and a refinance touches both.
Here is the walkthrough, start to finish. It covers what each structure leaves behind, how the file is built, where the general rule breaks, and how to decide.
What Down Payment Assistance Actually Is
Down payment assistance covers part of your minimum cash investment, and sometimes closing costs, when you buy a primary home. It sits on top of a government-backed first mortgage. Across the wholesale programs Lendmire places files with, that first mortgage is FHA, USDA, or HUD-184, depending on the option.
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify. Assistance is for an owner-occupied primary residence only, never a second home or a rental.
You can browse Lendmire’s down payment assistance programs for the full menu. The short version is four shapes, and they behave very differently at refinance time.
| Shape | Size | What it leaves behind |
|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay, no lien |
| Forgivable second | 3.5% of lesser of price or value | Lien until forgiven after 36 or 60 payments |
| Repayable second | 3.5% or 5% of lesser of price or value | Interest-bearing loan, balloon in year 10 |
| Refinance-cost second | 1% to 3.5% of balance | Same repayment terms as the repayable second |
Each is arranged through wholesale lenders, subject to program guidelines and full underwriting. Programs change, and every file is underwritten on its own.
Which Shape Leaves Nothing Behind?
The grant does. It is released at closing, with no lien, no payment, and no interest. Credit floor is 620, and it pairs with FHA first liens only. Eligibility turns on income at or below 140% of area median income, or a qualifying category such as a first responder, educator, medical worker, civil servant, military member, first-time buyer, or a property in an underserved census tract. An HUD-approved homebuyer education course is required. The grant is not offered in Washington.
At refinance, the grant adds no payoff and no subordination request. Your refinance is just a first-mortgage decision. That is the cleanest path.
The tradeoff is on the front end. The grant carries a narrower first-lien menu and cannot combine with another assistance program.
What Does a Second Lien Leave Behind?
A second lien is a loan secured by your home, and it stays there until it is forgiven or paid. Three of the shapes work this way, and they differ sharply.
The forgivable second. It runs 3.5% of the lesser of price or appraised value, with no interest and no monthly payment. It is forgiven after your first 36 or 60 on-time first-lien payments, with no 90-day-or-greater delinquency. Credit floor is 640. It pairs with FHA, USDA, or HUD-184 first liens on one- to two-unit homes.
The repayable second. It runs 3.5% or 5% of the lesser of price or value. At 5%, it also covers closing costs and prepaid items. It is interest-bearing and carries a monthly payment on a 30-year amortization, with a balloon due in year 10. Credit floor is 660. It also pairs with FHA, USDA, or HUD-184 first liens.
Do not call a second lien “free.” The forgivable one costs nothing in monthly cash, but the debt exists until the forgiveness schedule finishes. The repayable one is a real loan with its own payment and its own disclosure.
How the File Is Built, Step by Step
Understanding the build explains the cost. Here is how a file moves.
1. The first lien is set up. An approved lender underwrites an FHA, USDA, or HUD-184 loan. Each agency has its own rules for a second lien.
2. You choose the assistance shape. The grant, forgivable second, or repayable second, based on credit, income, and the first lien.
3. The second counts in the math. HUD defines combined loan-to-value as the base loan plus the balance of all subordinate mortgages, divided by the adjusted value, per the HUD Handbook 4000.1 glossary. A deferred or forgivable second still counts, even when no payment is due.
4. A repayable second adds a payment. That payment goes into your debt-to-income ratio. The assistance options follow the automated underwriting finding, and the repayable second does not allow manual underwriting.
5. The documents are signed. Expect a note, a recorded security instrument, and the program approval. These documents hold the repayment trigger language.
One practical point on step five. For certain homebuyer-assistance second liens, you may not get a separate Loan Estimate or Closing Disclosure. The repayable second Lendmire arranges carries its own separate disclosure, but ask for the note and lien documents either way, and read the trigger language before you sign.
What the FHA Loan Underneath Adds
The first mortgage has its own cost stack, and a refinance restarts parts of it. FHA requires a minimum investment of 3.5% of the lesser of price or appraised value, which gives 96.5% first-lien leverage. The upfront mortgage insurance premium is a percentage of the base loan, and buyers often finance it into the loan. Annual mortgage insurance then runs by tier.
For a loan above 90% loan-to-value, annual mortgage insurance lasts the life of the loan. At or below 90%, it lasts 11 years. That matters here because assistance keeps your starting leverage high, which can lengthen the insurance period. Refinancing does not erase this question. It resets the starting line.
FHA one-unit loan limits for the year run from $541,287 to $1,249,125, depending on the county. The assistance second does not count against that geographic limit, but the combined balance still has to stay inside FHA’s loan-to-value ratio, per HUD Mortgagee Letter 10-36.
The Refinance Cost Stack
Now the part the title promises. Before you refinance, these costs can pile up. Think of them as a stack, not a single fee.
- The assistance balance. For a repayable second, that is a loan balance. For a forgivable second, it is the unforgiven amount if you leave early.
- New first-lien closing costs. On an FHA streamline, HUD says closing costs cannot be added to the new loan amount, per HUD’s streamline refinance page. Plan to pay them out of pocket or through another structure.
- A new insurance or guarantee fee. USDA allows its up-front fee to be financed into a refinance, per USDA’s HB-1-3555 Chapter 6. HUD-184 charges the same guarantee fee on a refinance as on a purchase and gives no credit for the fee on the old loan.
- A subordination fee. Some assistance agencies charge one to let the second sit behind a new first, so ask whether yours does.
- An appraisal. Required on some paths, such as a HUD-184 no-cash-out refinance.
- Lost forgiveness. Refinance before the schedule ends, and the forgiveness clock can end with it. The exact trigger lives in your loan documents.
Add these up before you call the refinance a win. A lower payment on the first loan can look great, until the stack arrives at closing.
The Timeline: When Each Cost Shows Up
Costs change with how long you hold the loan. Picture three moments.
Before the forgiveness date. This is the most expensive window for a forgivable second. A refinance here can bring the balance due. If you are 18 payments into a 36-payment schedule, waiting costs you little, and refinancing early costs you the whole second.
After forgiveness. The lien is gone. Your refinance is now just a first-mortgage decision. This is the cleanest time to refinance, and the reason many buyers wait.
Around the year-10 balloon. On the repayable second, the balance comes due in year 10 no matter what. A refinance near that date may be a payoff event you needed anyway. Plan for it early. A balloon is not a surprise if you read the note.
Grants skip the timeline entirely, which is the point of the grant shape.
Where the General Rule Breaks
The rule of thumb is that a second lien complicates a refinance. Here are the named edge cases where it bends.
FHA streamline. A streamline refinances an existing FHA loan that is current, and it must show a net tangible benefit. HUD says cash back above $500 is not allowed. FHA also sets minimum seasoning and payment-history tests, which you can confirm on HUD’s page. An existing second lien in place may stay, but it generally must be resubordinated to the new first. That depends on your assistance agreement and on whether the holder agrees. Lendmire’s own programs exclude using the refinance-cost second on a streamline.
USDA. The assistance loan cannot be rolled into a new guaranteed refinance. It must be subordinate to the new loan or paid in full. USDA refinancing is limited to loans already financed or guaranteed by USDA, and the existing loan must have closed at least 180 days earlier. A buyer who starts on FHA with assistance cannot later move to a USDA refinance.
HUD-184. The program does not directly lend or provide down payment assistance, so any assistance comes from tribes or other third parties. Refinance types include no-cash-out, cash-out, and streamline, and the guidelines call for a new appraisal on no-cash-out and cash-out refinances.
Government-provided assistance. FHA requires lenders to document that a governmental entity is acting within its governmental capacity, per HUD Mortgagee Letter 19-06. Extra paperwork can follow assistance from a public agency.
The refinance-cost second. Lendmire arranges one for FHA 203(b) refinances, at 1% to 3.5% of the lesser of the current first-lien balance or appraised value, with combined loan-to-value up to 104%. It is never available on a streamline, and never to refinance an existing assistance loan. It carries the same repayment terms as the repayable second.
The honest summary: a refinance is rarely just a rate decision once a second lien is involved. It becomes a payoff, subordination, and eligibility decision.
Key Terms Defined
Combined loan-to-value (CLTV): the first mortgage plus all other liens, divided by the home’s value.
Subordination: the second lien holder agrees to stay behind a new first mortgage.
Resubordination: the same idea, applied to an existing second at refinance.
Balloon payment: a large remaining balance due at one set date, here in year 10 on the repayable second.
Net tangible benefit: the test FHA applies to show a streamline helps the borrower. Its definition varies by loan type.
Forgivable second: a lien that disappears after a set number of on-time payments.
What Your Decision Looks Like in Practice
Take a buyer who put 3.5% down using a forgivable second on a five-year schedule. Two years in, a refinance looks tempting. The gap between that moment and month 60 is the cost. Refinancing now may end forgiveness, so waiting often wins unless the savings are large.
Now a buyer with a repayable second at 5%. Their refinance question is different. Can the new first lien carry the second beside it, or will the second be paid off? If the holder will not resubordinate, the second must be paid, and a rate-driven plan becomes a cash-driven one.
And a buyer with a grant. They refinance whenever the first-mortgage math works. Nothing else is in the way.
Before you start any refinance, do this:
1. Pull your assistance note and security instrument.
2. Find the repayment trigger and the forgiveness date or balloon year.
3. Ask the holder for a payoff figure and a subordination request process.
4. Add the closing costs, new insurance fee, and any appraisal to the payoff.
5. Compare the full stack against what the new first mortgage saves.
HUD-approved housing counseling is a free source of neutral help if the numbers feel murky.
Mistakes That Make Costs Add Up
- Assuming the assistance is a gift. FHA separates a gift, which has no expectation of repayment, from secondary financing, which is a lien.
- Treating “no monthly payment” as “no debt.” The lien counts toward combined loan-to-value.
- Refinancing before forgiveness completes.
- Ignoring the year-10 balloon on a repayable second.
- Assuming the assistance can be rolled into a new loan. On USDA, it cannot.
- Skipping the note. The trigger language decides the outcome.
Frequently Asked Questions
Can I refinance if I used down payment assistance?
Usually yes, but the answer depends on the shape. A grant leaves no lien, so only the first mortgage matters. A second lien must be paid off or subordinated to the new first. Read your note for the trigger language before you apply.
Does a forgivable second ever come due early?
Yes, if you refinance or sell before the 36- or 60-payment schedule finishes, or miss payments badly enough to hit a 90-day delinquency. Forgiveness depends on on-time first-lien payments. The loan documents set the exact trigger, so confirm it first.
Can I roll the assistance balance into my new loan?
Often not. USDA says assistance loans cannot be included in a new guaranteed refinance. FHA streamlines do not allow closing costs to be added to the loan amount. Ask the lender what your specific path permits.
Does the repayable second raise my monthly budget?
Yes. It carries a payment on a 30-year amortization, with a balloon due in year 10. That payment goes into your debt-to-income ratio, so it affects qualification at purchase and at refinance.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify across the options. The three-year first-time definition is only one of several qualifying categories for the grant.
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.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging government-backed purchase loans and the down payment assistance options that sit on top of them through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. USDA
2. HUD Handbook 4000.1 Glossary (CLTV)
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Is Down Payment Assistance Forgiven Gradually or All at Once? · Can You Get Down Payment Assistance With No Occupancy Requirement? · Can Banks and Nonprofits Offer Down Payment Assistance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
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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.