The Quick Read: Down payment assistance forgiveness works as a countdown. Each on-time first-mortgage payment, and so each year you stay, moves a forgivable second lien closer to being wiped out. In the structures Lendmire arranges, the balance is forgiven after 36 or 60 on-time payments. Until then it is a real loan behind your first mortgage, with no interest and no monthly payment. If you sell, refinance, or move out before the clock runs out, you generally owe the remaining balance.
What Forgiveness Actually Means
Forgiveness is a countdown written into a loan. It is not a gift at closing.
Across the wholesale programs Lendmire places files with, the forgivable option is a second mortgage worth 3.5% of the lesser of the purchase price or the appraised value. Think of it as a loan you earn your way out of by paying your first mortgage on time. It has no interest and no payment of its own. After the first 36 or 60 on-time first-mortgage payments, with no delinquency of 90 days or more, the balance is forgiven.
The grant option is different. It has nothing to repay and no lien at all, and it is released at closing. The forgivable second is a loan until the finish line.
Lendmire is a mortgage broker. It arranges these structures through wholesale lenders, subject to program guidelines and full underwriting. This is not a commitment to lend. You can see the full menu on Lendmire’s page for down payment assistance programs.
One more point. You do not have to be a first-time buyer. Repeat and move-up buyers qualify for the forgivable second. It carries no income limit beyond USDA’s own limits when paired with a USDA first mortgage. The home must be your owner-occupied primary residence. Second homes and rentals are out.
Key Terms Defined
Second lien: A loan recorded behind your first mortgage. If the home is sold or foreclosed, the first mortgage gets paid first.
Forgivable second: A second lien whose balance is cancelled after you meet set conditions, with no interest and no monthly payment along the way.
Grant-style assistance: Help toward your down payment with nothing to repay and no lien.
Repayable second: A second loan with interest, a monthly payment, and a balloon payment due later.
Combined loan-to-value (CLTV): Your first mortgage plus all junior liens, divided by the home’s value.
Recapture: The repayment you owe if you leave before forgiveness finishes.
How Does the Countdown Reduce What You Owe?
Every year you stay and pay on time shortens the time left before the second lien disappears. How the dollars come off depends on the note you sign. Providers across the market use a few patterns:
- Gradual: a slice of the original balance is released for each year you stay.
- Stepped: nothing is forgiven for an initial stretch, then forgiveness runs yearly.
- Cliff: the whole balance disappears at the end of the term.
- None: a deferred “silent” second never shrinks and waits for a trigger such as a sale.
Down Payment Resource notes that on forgivable seconds it is common for a percentage to be forgiven each year over a set period. It adds that the loan must be repaid, sometimes with interest, if conditions are not met.
The forgivable option Lendmire arranges counts payments, not calendar time. It behaves like a cliff on a payment clock. The full 3.5% stays recorded until the last required payment, then the lien is forgiven and released. Each year of on-time payments is a year off the countdown.
Here is the picture, in percentages of the original assistance amount rather than dollars:
| Point in time | Payments still to earn | Share of assistance owed on exit |
|---|---|---|
| Closing | 36 or 60 | 100% |
| After 12 on-time payments | 24 or 48 | 100% |
| After 24 on-time payments | 12 or 36 | 100% |
| After 36 on-time payments (3-year) | 0 | 0%, forgiven |
| After 48 on-time payments (5-year) | 12 | 100% |
| After 60 on-time payments (5-year) | 0 | 0%, forgiven |
Read the table this way. The countdown shrinks every year. The amount you would repay if you left early stays whole until the finish, then drops to zero. Other providers do use year-by-year step-downs, so read the note itself and not the marketing page. Whatever schedule your note describes is the one that controls. No federal agency publishes a standard forgiveness schedule. Each provider writes its own.
What You Have to Do to Keep It Forgiving
Forgiveness is conditional. In the forgivable structure Lendmire places, the conditions are plain:
1. Make 36 or 60 on-time first-mortgage payments. Which one you get depends on the version you choose.
2. Avoid a 90-day-or-greater delinquency. One slip of that size can break the streak.
3. Keep the home as your primary residence. It is an owner-occupied loan.
4. Hold off on selling or refinancing until the count is done. Either one pays off the second lien.
Ask the lender what a single late payment does to the count. Some notes treat a late payment as merely late, while others are stricter. The note will tell you.
What You Owe If You Leave Early
Leaving early means the remaining balance comes due. It is generally paid out of your sale proceeds or at your refinance closing. It is a lien, so the title company has to clear it.
| Exit | What happens to the second lien |
|---|---|
| Sell before the count finishes | Balance repaid from proceeds at closing |
| Refinance before the count finishes | Balance repaid, or the provider’s subordination terms apply |
| Pay off the first mortgage | Balance repaid |
| Move out and rent the home | Breaks the owner-occupancy condition; repayment can be triggered |
| Stay through the final payment | Balance forgiven, lien released |
Mid-schedule proration is not a given. Some providers prorate and some do not. In the structure described here, the countdown works on payments completed. Treat the balance as owed in full until the last required payment unless your note says otherwise. Confirm that wording before you close, not after.
Picture a buyer using an FHA first mortgage plus the three-year forgivable second. Two years in, a job offer pulls them to another state, and they sell. The second lien comes off their proceeds, because they stopped short of 36 payments. Had they waited the extra year, it would have been forgiven. A buyer who plans to stay gets the most from this structure. A buyer who might move in two years should think harder.
How Repayment Shows Up at Closing
When you sell or refinance, the title company orders a payoff statement for each lien. The first mortgage and the second both appear on it. Proceeds go to the first mortgage first, then the second, then to you.
If the assistance has been forgiven by then, the second lien is released and nothing is owed on it. If not, your net proceeds drop by the remaining balance. That is why the real cost of this kind of assistance is not a monthly payment. It is the repayment risk if you leave early.
The First Mortgage Underneath
The forgivable second pairs with an FHA, HUD-184, or USDA first mortgage. Because the second is a lien, it is part of the combined-leverage picture. FHA counts it in CLTV, as HUD’s Handbook 4000.1 glossary spells out for subordinate mortgages.
FHA basics matter here. The minimum investment is 3.5% of the lesser of price or value, and the first lien runs up to 96.5% of that value. FHA charges an upfront mortgage insurance premium, which you can finance. It also charges an annual premium that varies by loan tier. FHA one-unit loan limits vary by county, so confirm the current limit for your county with a qualified local lender or HUD.
On the USDA side, USDA’s Chapter 16 closing rules require the guaranteed loan to hold first-lien position. They make an exception for a soft second used for down payment or closing costs. That is why a forgivable second can sit behind a USDA loan.
HUD-184 is a quirk. The program guarantees loans and does not itself provide down payment assistance. The assistance comes from an outside source, such as the forgivable structure described here.
Where the Rule Breaks: Edge Cases
“Grant” can mean different things. A true grant has no repayment obligation and no lien. Some public programs call something a grant that behaves like a loan. Read the recorded documents.
A deferred second is not a forgivable one. It never shrinks. It waits until sale, refinance, or payoff. Many public programs work this way. The Iowa Finance Authority’s FirstHome program is one public example. Repayment comes due at sale, refinance, or payoff of the first mortgage, with no monthly payments.
Refinancing can be blocked. USDA’s rules say an existing assistance silent second cannot be rolled into a new guaranteed refinance. It has to be paid off or re-subordinated. A refinance means dealing with the second lien first.
Source rules on FHA. When a government entity provides the help, HUD Mortgagee Letter 19-06 requires documentation that it acted within its governmental authority. Your lender handles that paperwork. It is one reason files with assistance get reviewed closely.
Repayable seconds are a different animal. The repayable option is a true second loan with interest, a monthly payment, 30-year amortization, and a balloon due in year 10. Nothing is forgiven. Do not confuse it with the forgivable version.
No stacking. Assistance from this program cannot be combined with another assistance program. A mortgage credit certificate is not permitted with the second-lien options.
Taxes. Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
Common Misunderstandings
- “It’s free money.” Not while it is a lien. Only the grant has nothing to repay.
- “I owe nothing at closing.” A recorded second lien exists from day one.
- “Forgiveness happens no matter what I do.” It depends on staying, occupying, and paying on time.
- “The assistance lowers my first mortgage.” It does not. The first mortgage stays the same size.
- “It only works for first-time buyers.” No option in the network requires that.
What the Decision Looks Like in Practice
Start with how long you plan to stay. If the answer is five years or more, the forgivable second looks strong, especially with thin savings. If you might move sooner, compare the grant option. It has nothing to repay but carries its own tests: household income at or below 140% of area median income, unless you fall into a qualifying category. Those categories are first responder, educator, medical worker, civil servant, military, first-time buyer, or a property in an underserved census tract. The grant also requires a homebuyer education course and pairs with FHA first liens only.
Credit matters too. The grant starts at a 620 credit floor. The forgivable second starts at 640 (660 when scores are blended). The repayable second starts at 660 (670 blended). Lendmire’s guide Which Credit Score Each Down Payment Assistance Program Needs goes deeper. Everything runs through full underwriting and an automated underwriting finding, subject to lender guidelines.
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. Call 828-256-2183.
Frequently Asked Questions
Does forgiven down payment assistance ever have to be repaid?
Not once the full schedule is complete and the lien is released. Before that point, selling, refinancing, paying off the first mortgage, or moving out can trigger repayment of the remaining balance.
Is there a monthly payment on a forgivable second?
No. The forgivable option carries no interest and no monthly payment. A repayable second is different: it has interest, a monthly payment, and a balloon due in year 10.
What happens if I sell in year two?
You repay the remaining balance from your sale proceeds. In the payment-count structure described here, the balance stays whole until payment 36 or 60. Your note controls, so confirm any proration language.
Can I refinance with a forgivable second on my home?
Yes, but the second lien must be paid off or handled under the provider’s subordination terms. USDA, for one, does not allow an assistance silent second to roll into a new guaranteed refinance.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, USDA and HUD-184 purchase loans with down payment assistance options through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. HUD Handbook 4000.1 Glossary
3. USDA RD HB-1-3555 Chapter 16 markup
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Use a USDA Loan Twice With Down Payment Assistance? · Down Payment Assistance Now vs Saving Another Year to Put More Down · Can You Get Down Payment Assistance With No Occupancy Requirement?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.