The Quick Read: Down payment assistance (DPA) changes your monthly payment only when it comes as a repayable second loan. A grant or a forgivable second adds no payment. Your student loans count in your debt ratio no matter what, so the assistance structure is the one lever you still control. A high income helps with qualifying. It does not make the student debt disappear from the math.
What Do You Actually Need to Know First?
Here is the short list before the mechanics.
- Student loans always get counted. Deferred, in forbearance, or on a $0 income-driven plan, the lender still puts a payment in your ratio.
- Only a repayable second adds a monthly payment. The grant and the forgivable second do not.
- “No payment” does not mean “no lien.” A forgivable second is still a loan secured against the home until it is forgiven.
- High income is not a disqualifier. The second-lien options carry no income limit of their own. The grant has an income test, but several ways around it.
- This is for a primary residence only. Assistance is never available on a rental or second home.
You can see the full menu on Lendmire’s down payment assistance programs page. The rest of this piece explains what each shape does to your budget.
Why Does Income Not Cancel Out Student Debt?
A big paycheck gives you a big denominator. It does not remove the numerator. Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income, as the Consumer Financial Protection Bureau describes it. Different loan products and lenders set different limits.
Picture a buyer earning well into six figures with a large graduate-school balance. The salary lifts the ratio’s bottom half. The student loan payment still sits in the top half, next to the new housing payment and every other credit-report debt. A lender looks at both halves.
That is why high earners with student debt often feel squeezed even when they feel well paid. The ratio, not the paycheck, decides how much house the file supports.
How Does the Lender Count Your Student Loans?
Lenders count every student loan, whatever its status. On an FHA loan, HUD Mortgagee Letter 2021-13 requires all student loans in the liabilities “regardless of the payment type or status of payments.”
The rule for the payment amount is simple. HUD’s FHA Q&A on student loan payments says the lender uses the credit-report payment or the actual documented payment when that figure is above zero. When the credit report shows $0, the lender uses 0.5 percent of the outstanding balance.
Two practical consequences follow:
- A buyer on an income-driven plan with a reported payment of zero can still carry a real, notional payment in the debt-to-income ratio.
- Older web articles quote a 1 percent rule, or even 2 percent. Those were earlier versions. The current approach replaced them.
USDA works a little differently. Under USDA’s Chapter 11 guidance, loans in a forgiveness plan stay the applicant’s legal responsibility until the creditor releases them, so the applicable payment counts. Debts marked “individual” count too, regardless of who actually pays them. That catches buyers whose parent or spouse has been covering a loan. This article does not state a USDA zero-payment percentage, because it varies by loan type and revision. Ask for the current figure on your file.
What Are the Four Shapes of Assistance?
Across the wholesale programs Lendmire places files with, assistance comes in four shapes. All of them sit on a government first mortgage and are arranged through wholesale lenders, subject to program guidelines and full underwriting.
| Shape | Size | Monthly payment? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | None, nothing to repay | 620 |
| Forgivable second | 3.5% of price or value | None, no interest | 640 |
| Repayable second | 3.5% or 5% of price or value | Yes, 30-year amortization | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms as repayable | 660 |
Credit floors are the lowest representative score among borrowers. The second-lien options allow a blended score in some cases, with higher minimums.
For a purchase, the first three matter. The fourth applies only when refinancing an FHA loan.
Zooming out, most public programs nationally take the second-mortgage form. The Down Payment Resource chartbook found that second mortgages made up the large majority of programs, with grants making up a much smaller share.
How Does Each Shape Change Your Monthly Payment?
Each shape changes the payment differently.
The grant: no payment, no lien
The grant is 2% or 3.5% of the purchase price, released at closing. It goes toward the FHA minimum investment. There is no lien, no interest and nothing to repay. It pairs only with an FHA first mortgage, and it is not offered in Washington.
Your monthly housing payment is just the FHA loan with its mortgage insurance. The grant lowers the cash you bring and leaves the payment alone. It requires an HUD-approved homebuyer education course. You pay for the course up front, and the cost is credited back at closing.
The forgivable second: no payment, but still a loan
The forgivable second is 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is forgiven in full after the first 36 or 60 on-time first-lien payments, depending on the version you pick. You cannot have a delinquency of 90 days or more in that stretch.
It pairs with FHA, USDA and HUD-184 first mortgages, for one-to-two-unit homes. Your monthly payment does not rise. But the lien is real until forgiveness arrives. If you sell or refinance before then, expect to pay off whatever remains. Your closing documents spell out the exact terms.
The repayable second: this is the one that adds a payment
The repayable second is 3.5% or 5% of the lesser of price or value. At 5%, the extra 1.5% goes toward closing costs and prepaid items. It is a real second loan. It carries interest, a monthly payment, a 30-year amortization schedule and a balloon due in year 10. It comes with its own loan disclosure and a separate balloon disclosure.
Your monthly budget now has two mortgage payments plus the student loan. The second loan’s payment also enters your DTI. Manual underwriting is not allowed on this option, so the file needs an automated approval finding. High-balance first liens are allowed.
Plain talk: this is a loan, not a gift. Treat it like one.
The refinance-cost second
If you already own with an FHA loan, a second covering 1% to 3.5% of the balance can fund refinance closing costs on an FHA 203(b) refinance. It follows the repayable terms. It is not for streamline refinances. It is also not for paying off an existing assistance loan.
Does a High Income Rule You Out of DPA?
No. Income caps are real but they are not universal. The two second-lien options carry no income limit beyond USDA’s own limit when the first mortgage is USDA. A high earner can use them on an FHA first lien with no income test from the program.
The grant is different. It has an income test: household income at or below 140% of area median income. But you can skip that test by fitting a qualifying category. Those include:
- first responders
- educators
- medical personnel
- civil servants
- military personnel
- first-time buyers
- buyers in underserved census tracts
Nobody has to be a first-time buyer for any option. Repeat and move-up buyers qualify. The three-year first-time definition is just one of the grant’s categories.
Many public programs cap income and require first-time status. That is how the high-earner reputation problem arose. The options described here do not work that way. Not every program does, so check each one rather than assuming either way.
What Is the Two-Gate Model?
Think of the process as two gates. Gate one is the first mortgage. The lender builds your DTI from gross income, the proposed housing payment, mortgage insurance and every liability on your credit report. Student loans act here, and the agency’s rule sets the payment. You cannot negotiate it.
Gate two is the assistance. The program checks your credit score, occupancy and, for the grant, your income or category. It decides whether assistance adds a payment. You can choose among structures.
So the practical split is this. Student debt is fixed by agency rules. The assistance shape is your choice. A high earner with large loan payments has the least room to spare in the ratio, which pushes the choice toward structures that do not add a payment.
How Do the Numbers Stack Up for One Buyer?
Run the numbers in words. Take one buyer with a strong salary, a graduate-loan payment already on the credit report, and a primary-residence purchase on an FHA first mortgage with a 3.5% minimum investment. Here is the same buyer under three structures.
With the grant: the housing payment is the FHA loan plus mortgage insurance. The ratio carries the housing payment and the student loan. Nothing else.
With the forgivable second: the payment stack is identical to the grant case. The difference is the lien, which remains until forgiveness after 36 or 60 on-time payments.
With the repayable second: the stack adds the second loan’s monthly payment on top of everything else. The ratio rises. Whether the file still clears depends on the automated finding, your credit and your remaining income.
FHA mortgage insurance is part of every one of these stacks. The upfront premium is 1.75% of the base loan, and it can be financed into the loan. The annual premium is billed monthly. FHA’s one-unit loan limits run from $541,287 to $1,249,125 by county.
Before an FHA file goes manual, the standard ratios sit at 31/43. Automated approvals commonly allow more, and the assistance options follow the automated finding. The published standard for USDA loans is 29/41. A ratio waiver is possible with strong compensating factors, and a PITI above 34 percent on a purchase is the ceiling in the program’s own materials. A strong automated finding supports a waiver request, though the lender and program guidelines make the final call. That matters when a high earner’s DTI is stretched by student debt but the file is otherwise strong.
Where Does the General Rule Break?
A few edge cases change the picture.
A $0 student loan payment. You may pay nothing today. FHA still counts 0.5 percent of the balance when the credit report shows $0. Expect a notional payment in the ratio.
Loans in forgiveness plans. On USDA, the payment counts until the creditor releases the loan.
Co-signed debts paid by someone else. USDA includes debts marked “individual” regardless of who pays them.
A forgivable lien is not a gift. The assistance is only free if you complete the occupancy and payment period. Leave early and the unforgiven balance can come due.
HUD-184 first mortgages. The Section 184 program guarantees the lender’s loan. It does not provide assistance itself, as HUD’s Section 184 handbook states. The forgivable and repayable seconds described here can pair with an 184 first lien, but they are separate loans with their own terms.
USDA refinances. Assistance seconds cannot be rolled into a guaranteed USDA refinance. They must be subordinated or paid off.
Payment-free but not cost-free. A grant or forgivable second lowers the cash you need up front. But a forgivable lien still sits on the property, so it affects what you could do with a sale or refinance in the early years.
What Happens If You Sell or Refinance Early?
Each shape behaves differently.
- Grant: nothing to repay. There is no lien to clear.
- Forgivable second: the unforgiven balance generally comes due if you sell or refinance before the 36- or 60-payment mark. After that, it is gone.
- Repayable second: the balance comes out of sale proceeds or the refinance. If you are still holding it in year 10, the balloon comes due.
Confirm your own timeline in the loan documents. Program terms change, and each file is underwritten individually.
How Should a High Earner Decide?
Use a few plain rules.
If your ratio is tight because of student loans, lean toward the grant or the forgivable second. They add no payment. If you qualify for the grant through a category or the income test, it is often the cleanest structure. It has no lien and no payoff question.
If you fall outside the grant and need the cash, the forgivable second is the next stop. You trade a lien for a payment-free structure. Stay in the home through the forgiveness period and the lien disappears.
Use the repayable second when you need the larger amount, especially the 5% version that also covers closing costs, and your ratio has room. Otherwise it can tighten the file just where student debt already pushed it. It also asks you to plan for the year-10 balloon.
Sometimes assistance is not the right tool. A buyer with real savings may do better putting more cash down and skipping a second lien entirely. One more thing: no assistance option stacks with another assistance program, and a mortgage credit certificate is not allowed with the second-lien options.
What Should You Confirm With a Lender?
Ask for these in writing before you commit.
1. Which shape fits your file, and which first mortgage it pairs with. 2. The payment your student loans will carry in the ratio, especially if your credit report shows $0. 3. Whether the structure adds a monthly payment, and what the loan disclosures say. 4. The forgiveness period, the balloon year and the payoff rule on a sale or refinance. 5. Your credit score against the program floor. The grant starts at 620, the forgivable second at 640 and the repayable second at 660. 6. Whether the homebuyer education course applies to your option.
Programs change, and the answers above are subject to lender guidelines and full underwriting. Nothing here is a commitment to lend.
Key Terms Defined
Debt-to-income ratio (DTI): your monthly debt payments divided by your gross monthly income. Lenders use it to judge how much housing payment you can carry.
Second lien: a loan secured against your home that sits behind the first mortgage. If you sell, the first mortgage is paid first.
Forgivable second: a second lien with no interest or payment that is forgiven if you make a set number of on-time first-mortgage payments.
Repayable second: a second loan with interest, a monthly payment and a balloon due in year 10.
Balloon: a lump-sum balance due at the end of a loan term, before the loan would fully pay off.
Notional payment: a payment the lender counts in your ratio even when your credit report shows you owe nothing right now, such as 0.5 percent of a student loan balance on FHA.
Automated underwriting (AUS): software that scores your file and returns an approval finding. FHA and USDA each use their own system.
Frequently Asked Questions
Does down payment assistance raise my monthly payment?
Only the repayable second does. It adds a second loan payment on top of the first mortgage. The grant has nothing to repay, and the forgivable second carries no payment or interest. Mortgage insurance on the FHA first mortgage applies in every case.
Will my student loans count if they are in deferment?
Yes. On FHA, every student loan counts regardless of payment status. If your credit report shows $0, the lender uses 0.5 percent of the balance. On USDA, loans in forgiveness plans stay your responsibility until released, so a payment counts there too.
Can I use DPA if I earn too much?
Often yes. The forgivable and repayable seconds have no income limit beyond USDA’s own limit on a USDA first mortgage. The grant has a 140% of area median income test, but you can bypass it as a first responder, educator, medical worker, civil servant, military member, first-time buyer or buyer in an underserved tract.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify for every option. The first-time definition is only one of the grant’s qualifying categories. Assistance applies to an owner-occupied primary residence only, never a rental or second home.
What happens to the assistance if I sell early?
It depends on the shape. A grant has nothing to repay. A forgivable second generally comes due in part or in full if you sell or refinance before the 36- or 60-payment mark. A repayable second is paid from sale proceeds or at the year-10 balloon.
Where This Leaves You
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. Reach the team at 828-256-2183.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. Down payment assistance options are arranged alongside FHA, USDA and HUD-184 first liens through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Consumer Financial Protection Bureau
2. HUD Mortgagee Letter 2021-13
3. Urban Institute / Down Payment Resource chartbook
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: Does a Relocating Buyer Owe Anything on a DPA When They Move? · How to Find Down Payment Assistance as a High Earner With Student Debt · Does DPA Help When Price Caps Bind in a High-Cost Market?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.