The Quick Read: A state housing finance agency program fits best when the buyer is happy to use the agency’s own first mortgage and a participating lender. A lender-run program fits best when the buyer needs a different first lien, or when agency funds are paused or out of reach. Neither one is better in general. The choice turns on the pairing rule, the repayment shape, and what each program asks of the buyer’s file.
Both options are for an owner-occupied primary residence. Neither covers a second home or a rental.
Side-by-Side
The table below compares the two paths by structure, not by price. Agency programs vary by state, so the left column describes the general pattern. The right column reflects the assistance options Lendmire arranges through wholesale lenders, subject to program guidelines and full underwriting.
| Factor | State HFA program | Lender-run program (wholesale options) |
|---|---|---|
| Who runs it | Public housing finance agency | Participating mortgage lender |
| First-lien pairing | Often the agency’s own first mortgage | FHA grant; FHA, USDA or HUD-184 for seconds |
| Assistance shapes | Grants, deferred seconds, amortizing seconds | Grant, forgivable second, repayable second |
| Repayment | Varies by program | Grant: none. Forgivable: forgiven after 36 or 60 payments. Repayable: 30-year amortization, balloon in year 10 |
| Credit floor | Set by each agency | 620 grant, 640 forgivable, 660 repayable |
| Income test | Common, varies by state | Grant: 140% of area median income unless a category applies. Seconds: none beyond USDA’s own |
| First-time buyer required | Often, but definitions vary | No option requires it |
| Counseling | Common condition | Required on the grant only |
| Funding risk | Funds can pause or run out | Confirm availability on each file |
What Each Option Really Is
A state housing finance agency, or HFA, is a public body. The FDIC’s affordable lending guide describes the forms its help takes: forgivable grants, zero-interest deferred “soft seconds,” and fully amortizing second loans. The same guide notes that agencies often limit the help to use with their own first mortgage.
That pairing rule is the single biggest filter. If the buyer wants an FHA loan from a lender the agency does not work with, or a first mortgage the agency does not offer, the agency’s assistance may not attach.
“Lender-run” is not a formal federal category. In practice it means assistance a mortgage company or its wholesale channel administers instead of a public agency. How the money is treated depends on its form. A grant has no lien. A second lien is a loan, and it is underwritten and disclosed as one.
The wholesale options Lendmire arranges come in four shapes. Three apply to purchases: a grant, a forgivable second, and a repayable second. The fourth is a second lien that helps with refinance costs on an FHA refinance. All of them sit under a government first lien.
When the State HFA Program Is the Better Fit
An agency program is the stronger pick in a few situations.
The buyer wants the agency’s first mortgage anyway. If the agency’s loan works for the file, the pairing rule stops being a limit. The assistance and the first lien are designed to go together.
The agency program is larger or longer-dated than what a buyer can get elsewhere. Many public programs cap assistance at a set amount, and some defer repayment for a long period or forgive it over time. Those terms differ by state. Read the program guide, not a summary.
The buyer fits the targeting. Public programs often serve low- and moderate-income buyers, and some focus on public-service workers or particular neighborhoods. The federal consumer-finance regulator’s overview of special loan programs notes that many states, local governments and nonprofits run these programs. If the buyer is squarely inside the target, the agency is built for them.
The buyer values the counseling. Education is a common condition of agency help. For a first purchase, the course is often worth taking regardless.
The catches are real, though. Funding can pause or run out, so a buyer should confirm a reservation before leaning on assistance in a purchase contract. Definitions also vary. “First-time buyer” may mean never owned, or may mean no ownership in a lookback period. Ask for the written definition. And some agency second liens limit refinancing later, so ask about subordination before signing.
When a Lender-Run Program Is the Better Fit
Lender-run assistance wins when the agency route is blocked or mismatched. Here is where that tends to show up across the wholesale files Lendmire places.
The buyer needs a first lien the agency does not pair with. The forgivable and repayable seconds pair with FHA, USDA and HUD-184 first mortgages. The grant pairs with FHA. That range covers buyers the agency’s single product may not.
The buyer is not a first-time buyer. None of the wholesale options require first-time status. A repeat buyer moving up, or someone who sold a home years ago, is reviewed on the same footing. The grant treats first-time status as one of several qualifying categories, not a requirement. That matters, because many people assume assistance is only for first purchases. The Urban Institute finds that eligibility in this space turns on loan amount, buyer status, income and family size, which is why the specific program rules matter more than the label.
The buyer’s income is above typical agency caps. The two second-lien options carry no income limit, beyond USDA’s own limits when the first lien is USDA. The grant has a test at 140% of area median income. It also opens to buyers in listed categories regardless of income: first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers purchasing in an underserved census tract.
The buyer wants nothing to repay. The grant is 2% or 3.5% of the purchase price toward the FHA minimum investment. It releases at closing with no lien, no payment and no interest. It requires a credit score of 620, an HUD-approved homebuyer education course, and an FHA first lien at 96.5% loan-to-value. It is not offered in Washington. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The buyer needs closing-cost help too. The repayable second at 5% covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. A buyer with thin savings may find that more useful than a down-payment-only structure.
How the Money Behaves
This is where buyers get surprised, so here is each shape in plain terms.
Grant. Nothing to repay. No lien. The trade is the eligibility test and the education course.
Forgivable second. It is 3.5% of the lesser of price or appraised value. No interest, no payment. It is forgiven after the first 36 or 60 on-time first-lien payments, depending on the version chosen. It is still a lien until then. The credit floor is 640. No homebuyer counseling is required.
Repayable second. It is 3.5% or 5% of the lesser of price or value. This is a real loan: interest-bearing, with a monthly payment, a 30-year amortization and a balloon due in year 10. It has its own loan disclosure and a separate balloon disclosure. The credit floor is 660. Manual underwriting is not allowed on this one.
Refinance-cost second. It is 1% to 3.5% of the lesser of the current balance or value, applied to FHA refinance costs, with combined loan-to-value up to 104%. It follows the repayable terms.
A silent second still counts. It is a lien, and underwriters consider it. On the USDA guaranteed loan program, for example, financing can reach the full appraised value, with no minimum score, no purchase price cap and no first-time requirement, and assistance sits outside the guarantee. The first lien rules and the assistance rules stack. Neither replaces the other.
Two limits apply to the wholesale options. Nothing stacks with another assistance program. And a mortgage credit certificate is not permitted with the second-lien options.
The FHA Layer Underneath
Most of these files sit on an FHA first lien, so the FHA mechanics apply either way. The minimum investment is 3.5%, which means 96.5% first-lien leverage. FHA charges an upfront mortgage insurance premium, which can be financed into the loan, plus annual mortgage insurance that depends on the loan tier. One-unit FHA loan limits run from $541,287 to $1,249,125 depending on the county.
Credit floors matter more than most buyers expect. FHA itself allows lower scores, but each assistance option carries its own higher floor, listed above. Second-lien options also allow blended scores. A lower-scoring co-borrower’s score can be averaged in when the primary wage earner earns at least 60% of household income and holds the higher score. The minimums become 660 for the forgivable second and 670 for the repayable one, and an automated underwriting approval is required.
Where Files Break
On both paths, the same preventable gaps cause trouble.
1. Pairing mismatch. The buyer picks a program, then discovers it does not attach to the first lien they wanted. Confirm the pairing rule before choosing a house.
2. Stacking assumptions. A buyer assumes a city grant, an agency second and a lender grant can all combine. The wholesale options do not stack with another assistance program.
3. Occupancy. Assistance is for a primary residence. A file that hints at renting out the property gets kicked back.
4. Missing education certificate. On the grant, the course is required. The buyer pays up front and the cost is credited back at closing. A file without the certificate stalls.
5. Property type. The second-lien options cover single-family detached or attached homes, condominiums and PUDs. Unique property types are excluded. The grant covers 1-4 unit primary residences, FHA-approved condominiums and PUDs.
6. Repairs. On the second-lien options, escrow holdbacks cover minor non-structural repairs up to $5,000, with 150% of the estimate escrowed and the work completed within a timeframe that varies by file and lender.
7. Income documentation. The grant’s income test is 140% of area median income, which means the file needs clean income evidence, unless a category applies.
A buyer who plans to sell or refinance early should ask about the repayment terms up front. Secondary financing like these loans generally cannot simply be rolled into a new guaranteed refinance. It must be subordinated or paid off. Some agency seconds restrict subordination further. Forgivable seconds only forgive after the full period of on-time payments. Leave early and the lien may come due.
Which Buyer Fits Which Path
Run the profiles, not a blanket verdict.
A renter buying a first home, comfortable with the agency’s first mortgage and sitting inside its income limits: start with the agency. The pairing is built in, and the counseling helps.
A repeat buyer moving up, above typical agency income limits: the lender-run seconds are the likelier fit, since they carry no income test and no first-time requirement.
A teacher, nurse or first responder with limited savings: the grant is worth a hard look. Nothing to repay, and the qualifying categories open it without the income test.
A buyer with a USDA or HUD-184 first lien: the grant will not pair, since it works with FHA only. The forgivable or repayable second is the route.
A buyer who will likely sell or refinance within a few years: weigh the forgivable second’s 36 or 60 payment clock, or the grant, against any repayable structure with a balloon in year 10.
The honest toss-up is the buyer who fits both. Then compare the whole file: how the assistance is repaid, what the first lien requires, and whether funds are available today. Those three questions outweigh any headline feature.
One more check applies to both paths. Ask whether the assistance changes the terms of the first mortgage. Some public analysis has debated whether certain agency programs fund assistance through the first loan’s terms. Ask directly, and compare the full offer, not the assistance line alone.
Can You Combine Them?
Not with the wholesale options. Nothing in them stacks with another assistance program. Whether a given agency program allows other layers is that program’s own rule, so ask for its written stacking rule before signing. Pick one structure and build the file around it.
If the buyer has more than one program in view, Lendmire’s down payment assistance programs page lays out the grant, forgivable and repayable structures side by side. Lendmire’s piece on repeat-buyer assistance versus first-time-only programs covers the move-up buyer in more depth.
Key Terms Defined
HFA: A state housing finance agency, a public body that runs homebuyer programs.
Soft second: A second lien with no required monthly payment, repaid or forgiven under set conditions.
Combined loan-to-value: The first loan plus all second liens, divided by the home’s value.
Balloon: A lump-sum balance due at a set point, such as year 10, before the loan fully amortizes.
Minimum required investment: The buyer’s own contribution FHA requires, 3.5% of the lesser of price or appraised value.
Blended score: A qualifying score that averages a co-borrower’s score under set conditions.
Frequently Asked Questions
Do I have to be a first-time buyer to use either option?
No for the wholesale options. None of them require first-time status, and repeat buyers qualify. Agency programs vary, and many target first-time buyers, so check each program’s written definition. Some use a lookback period instead of “never owned.”
Is down payment assistance free money?
No. The grant has nothing to repay, but the forgivable second is a lien until the forgiveness period ends, and the repayable second is a loan with a monthly payment and a balloon in year 10. Read which shape the program uses before relying on it.
Can I use assistance on a second home or a rental?
No. Both paths are for an owner-occupied primary residence only.
Will an agency program work with any lender?
Often not. Agency help is commonly tied to the agency’s first mortgage and its participating lenders. Federal pass-through funds administered through cities or nonprofits often do not carry that requirement, so ask which kind of money the program uses.
What happens if funds run out before closing?
The assistance may not be available to that file. Confirm that funds are reserved before counting on them in a contract. Funding can pause or end, particularly for grants, so a backup structure is worth discussing early.
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. This is not a commitment to lend.
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.
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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. FDIC Affordable Mortgage Lending Guide: HFA down payment programs
2. CFPB: Special loan programs
3. Urban Institute: Barriers to Accessing Homeownership
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Down Payment Assistance Changes Your Monthly Payment · How Down Payment Assistance Works on a Condo Purchase · Can a High Earner Get Down Payment Assistance in Any State?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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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.