The Quick Read: The choice comes down to three questions: how long you will stay, whether your budget can carry one more monthly payment, and whether you meet the grant’s eligibility test. A grant has nothing to repay. A forgivable second is a loan that disappears if you make your payments on time. A repayable second is a loan you pay back, with a balloon in year 10. Each one is available through wholesale lenders, subject to program guidelines and full underwriting.
Key Takeaways
- The legal form of the assistance decides almost everything else: lien or no lien, payment or no payment, what you owe if you sell early.
- You do not have to be a first-time buyer for any of the three. Repeat buyers qualify.
- All three are for an owner-occupied primary residence only. Never a second home, never a rental.
- You cannot stack one assistance program on top of another.
- A forgivable second is still a loan until it is forgiven. A grant is the only shape with no lien at all.
What Are the Three Shapes, in Plain Words?
Think of the three shapes as three different contracts. Across the wholesale programs Lendmire places files with, each one pairs with a government-backed first mortgage. That means FHA, and for the two second-lien options, USDA or HUD-184 as well.
The grant. The assistance equals 2% or 3.5% of the purchase price and goes toward your FHA minimum investment. You repay nothing. It is released at closing, with no lien, no payment and no interest. The credit floor is 620. It pairs only with an FHA first mortgage.
The forgivable second. This is a second loan equal to 3.5% of the lesser of the price or the appraised value. It carries no interest and no monthly payment. After 36 or 60 on-time payments on your first mortgage, depending on the version, the whole balance is forgiven. The credit floor is 640.
The repayable second. This is a real second loan for 3.5% or 5% of the lesser of price or value. It bears interest, has a monthly payment, amortizes over 30 years and comes due in a balloon in year 10. At 5%, the extra 1.5% covers closing costs and prepaid items. The credit floor is 660.
There is a fourth shape for people who already own: a second lien that covers the closing costs of an FHA refinance. It runs 1% to 3.5% of the balance and works on the same terms as the repayable second. This article focuses on purchases, so the three above are the ones you are choosing between.
Lendmire’s down payment assistance programs page lists all four side by side. Here is how to pick.
What Sits Underneath: The FHA First Mortgage
You cannot choose the assistance without understanding the loan it rides on. FHA requires a borrower investment of at least 3.5% of the lesser of price or appraised value. HUD’s Handbook 4000.1 glossary calls this the Minimum Required Investment. Assistance is how many buyers meet it without draining savings.
With 3.5% in, the first mortgage runs at 96.5% of value. FHA adds an upfront mortgage insurance premium, which you can finance into the loan. An annual premium follows, set by loan size and leverage. For most buyers at this leverage, it lasts for the life of the loan. Ask your lender for the exact premium amounts that apply to your loan, and consult a qualified local professional for guidance on how they fit your situation.
The 2026 FHA limits for a one-unit home run from $541,287 to $1,249,125, depending on the county. Most buyers land somewhere in the middle of that range.
Two details matter for the choice:
- The grant works only with standard-limit FHA first liens. No high-balance loans.
- The repayable second allows high-balance first liens. The forgivable second and the grant do not.
So a buyer in an expensive county may find the repayable second is the only shape that fits.
How Is the File Underwritten, Step by Step?
Underwriting is where the three shapes start to feel different. Here is the sequence on a typical file.
1. You pick the first mortgage. FHA, USDA or HUD-184 sets the baseline rules. The assistance sits on top.
2. The lender identifies the assistance shape. Grant, forgivable second or repayable second. Each has its own credit floor, as noted above.
3. The first mortgage is run through an automated underwriting system (AUS). The assistance options follow the AUS finding. The repayable second requires an AUS approval. It does not allow manual underwriting. The forgivable second does allow it.
4. The payment is counted. A grant adds no payment. A forgivable second adds none either. A repayable second does, and that payment counts toward your debt-to-income ratio (DTI), the share of your monthly income that goes to debts.
5. Combined leverage is checked. FHA looks at all liens together against the property’s value. The second lien must sit behind the first.
6. Documents are collected. Every file needs the application and the usual income and asset papers. The grant adds a homebuyer education course. The seconds add a note and a separate loan disclosure.
7. Closing. The assistance is applied to your minimum investment and, on the 5% repayable option, closing costs.
That payment treatment in step 4 is the quiet reason many buyers rule out the repayable second. It can lower how much first mortgage you qualify for. HUD’s page for nonprofit and governmental entities confirms that assistance secured by a second lien can sit alongside an FHA-insured first mortgage. In practice, a payment on that lien counts toward your total housing payment.
Is a Forgivable Second Really a Grant?
No. This is the most common mix-up, and it is worth slowing down on.
A forgivable second has no interest and no monthly payment. It looks like a gift. But it is a loan, secured by a lien on your home, and the lien stays on title until it is forgiven. If you sell or refinance before then, you owe the unforgiven balance.
Forgiveness also has a condition. You earn it by making the first 36 or 60 payments on your first mortgage on time, with no delinquency of 90 days or more. Miss that standard and the forgiveness does not happen.
A grant is different in kind. It is released at closing and nothing attaches to the house. You never worry about selling early. That is the real advantage of the grant, and it is why the 140% income test and the other eligibility rules matter so much.
Do You Even Qualify for the Grant?
The grant is the only one of the three with an income test. Meet any one of these and you are eligible:
- Household income at or below 140% of the area median income.
- A qualifying category: first responder, educator, medical worker, civil servant or military member (current, retired or volunteer).
- First-time buyer status, meaning no ownership interest in a residential property in the prior three years.
- A property in an underserved census tract.
So a high earner can still qualify. A nurse or teacher can qualify at any income. A buyer who owned a home five years ago and now rents is a first-time buyer under this definition.
Two other conditions apply. You must complete an HUD-approved homebuyer education course. You pay for it up front, and the cost is credited back at closing. And the grant is not offered in Washington.
The grant also cannot be combined with several FHA variations, including FHA High Balance, FHA $100 Down, FHA 203(h), Good Neighbor Next Door and One-Time Close.
The forgivable and repayable seconds carry no income limit. The one exception is a USDA first mortgage, where USDA applies its own household income limit.
Side by Side: The Decision Table
| Factor | Grant | Forgivable second | Repayable second |
|---|---|---|---|
| Amount | 2% or 3.5% of price | 3.5% of price or value | 3.5% or 5% of price or value |
| Repay? | Nothing to repay | Forgiven after 36 or 60 on-time payments | Yes, with a balloon in year 10 |
| Lien on home | None | Yes | Yes |
| Monthly payment | None | None | Yes |
| Credit floor | 620 | 640 | 660 |
| Income test | 140% AMI or a category | None (USDA limit on USDA loans) | None (USDA limit on USDA loans) |
| First liens | FHA only | FHA, USDA, HUD-184 | FHA, USDA, HUD-184 |
| High-balance first lien | No | No | Yes |
| Units | 1-4 | 1-2 | 1-2 |
Read the table by column for the shape, then by row for the thing that worries you most. If your worry is the monthly budget, the repayable column is the heavy one. If your worry is selling in three years, the forgivable column is the risky one.
The Decision Path: Five Questions in Order
Work through these in order. Stop when one gives you a clear answer.
1. Do you meet the grant’s test and use an FHA loan? If yes, start with the grant. Nothing to repay, no lien, no payment. It is the cleanest structure when it fits.
2. Are you buying a one- or two-unit home with USDA or HUD-184 financing? Then the grant is off the table, since it pairs only with FHA. Your choice is between the two seconds.
3. How long will you realistically stay? If you expect to stay at least three to five years, the forgivable second works in your favor. It adds no payment and the balance disappears. If a move is likely sooner, you would owe the unforgiven balance at sale, so weigh that.
4. Can your DTI absorb a new monthly payment? If yes and you want more help, the repayable second at 5% also covers closing costs. If your ratios are tight, the repayable second may reduce the first mortgage you can get. The forgivable second avoids that.
5. Do you need closing-cost help or a high-balance loan? Only the 5% repayable second covers closing costs and prepaid items on the purchase side. Only the repayable second pairs with a high-balance first lien.
Nobody gets a verdict from a table. A lender runs your file and compares the structures on your numbers. That is what you should ask for.
Where the General Rules Break
Every rule above has an edge. These are the ones that catch buyers.
Credit score blending. On the second-lien options, a lower-scoring co-borrower can be averaged in when the primary wage earner earns at least 60% of household income and holds the higher score. The blended minimums are 660 for the forgivable second and 670 for the repayable one. An AUS approval is required.
Property type. The grant covers one to four units, FHA-approved condominiums and planned unit developments. The seconds cover single-family homes (attached or detached), condominiums and planned unit developments, in one- and two-unit buildings. Unique property types are excluded.
Repairs. On the second-lien options, minor non-structural repairs of up to $5,000 can be escrowed. The lender holds 150% of the estimate, and the work must be completed within the timeframe the lender sets, which varies by file and lender.
The stacking rule. No option can combine with another assistance program. A mortgage credit certificate is also not permitted with the second-lien options. This surprises buyers who have found a local program and assume they can add it.
Refinancing later. A second lien is a separate loan. Refinancing the first mortgage while a second sits behind it means the second has to be paid off or the lender has to agree to stay behind the new loan. USDA is stricter: its handbook says assistance seconds must be subordinated or paid off in a refinance, not rolled in.
HUD-184 has no assistance of its own. HUD’s Section 184 handbook says the program guarantees loans but does not provide down payment assistance. The second-lien options pair with an HUD-184 first lien, but the assistance itself does not come from HUD.
A rental or second home. Assistance is for an owner-occupied primary residence only.
Which Buyer Leans Toward Which Shape?
Think in profiles, not formulas.
The renter buying a first home with thin savings. Likely meets the grant’s first-time-buyer category. Start there if FHA fits. The grant leaves no lien and no payment.
The repeat buyer moving up. Do not assume you are shut out. No option requires first-time status. Your path is the forgivable or repayable second, or the grant if income or a category qualifies you.
The teacher, nurse or firefighter. The grant’s category test means income is not the barrier. That can matter in a county where median income is high and your own household sits above 140%.
The buyer with tight monthly ratios. Lean away from the repayable second. The forgivable second or the grant adds no payment.
The buyer who may move in two or three years. This is a genuine toss-up. The grant avoids the exit problem entirely, if you qualify. If you do not, the forgivable second creates a repayment exposure on an early sale, while the repayable second creates a payment plus a payoff. Neither is free, so run both.
The buyer in a high-cost county. The repayable second is the only shape that pairs with a high-balance first lien.
What the Market Looks Like Beyond These Programs
Public programs vary widely. Urban Institute research found that most assistance programs are second mortgages, while grants are a much smaller share. Many state programs, such as the Iowa Finance Authority’s, mix a grant with a second loan, and terms differ from program to program. Some tie assistance to the agency’s own first mortgage. Funding can also run out. That variety is a reason to compare, not to assume.
Questions to Ask Before You Sign
- Is the assistance a lien on my home, yes or no?
- What exactly triggers repayment: sale, refinance, move-out, or payoff of the first mortgage?
- If forgivable, how many on-time payments, and what counts as late?
- Does the second have a monthly payment, and how does it affect my DTI?
- When does the balloon come due?
- Can you run all three structures side by side on my file?
Also ask for the separate loan disclosure on any second lien. It is its own loan, and it comes with its own paperwork.
Key Terms Defined
Minimum required investment. The cash an FHA borrower must put into the purchase, at least 3.5% of the lesser of price or appraised value.
Second lien. A loan secured by your home that sits behind the first mortgage in repayment priority.
Forgivable. A loan whose balance is wiped out if you meet set conditions, such as on-time payments over 36 or 60 months.
Balloon payment. A lump sum due at the end of a set term, even though the monthly payments were calculated over a longer period.
Debt-to-income ratio (DTI). Your monthly debt payments divided by your gross monthly income.
Area median income (AMI). The midpoint household income for your area, used to set income limits.
Automated underwriting system (AUS). Software that reviews a loan file against lending rules and returns a finding.
Frequently Asked Questions
Do I have to be a first-time buyer to get down payment assistance?
No. Repeat and move-up buyers qualify for all three shapes. The three-year first-time definition is only one of the grant’s qualifying categories. The grant also opens to first responders, educators, medical workers, civil servants, military members, buyers under 140% of area median income and buyers in underserved census tracts.
Can I use assistance on a rental or second home?
No. Assistance is for an owner-occupied primary residence only. Second homes, vacation homes and rentals are not eligible under any of the options.
Which option adds a monthly payment?
Only the repayable second. It is a real loan with interest and a 30-year amortization, and the payment counts toward your DTI. The grant and the forgivable second add no payment. The repayable second also comes due in a balloon in year 10, so plan for a sale, a refinance or a payoff by then.
Can I combine a grant with a local or state program?
No. None of the options can be combined with another down payment assistance program, and a mortgage credit certificate is not permitted with the second-lien options. If you have found a local program, ask your loan officer to compare it with these before you commit to either.
What happens to a forgivable second if I refinance early?
You would owe the unforgiven balance, because the lien is still on your home. Forgiveness comes after 36 or 60 on-time first-lien payments, depending on the version. Refinancing before then means the second is paid off or the lender must agree to stay behind the new loan.
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
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.
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References
1. HUD Handbook 4000.1 Glossary
2. HUD, Nonprofit and Governmental Entity page
3. Urban Institute, DPA awareness
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: How to Subordinate a DPA Second When You Refinance the First · Who Must Occupy and Who Must Take the Class on a DPA Loan? · How Much a Grant vs Forgivable Second Forgives at Sale or Refinance
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.