The Quick Read: It depends on the shape of the assistance, and the forgivable option we arrange does not work as a yearly slice. That second lien is forgiven in full after the first 36 or 60 on-time first-mortgage payments, so a move before that point leaves the note in play. The grant option has nothing to repay. The repayable second is a real loan and comes due when you sell.
Why “Per Year” Is the Wrong Frame
No federal agency sets a forgiveness rate. FHA, USDA and HUD-184 only set rules for the first mortgage and how it treats the help. The schedule, the occupancy term and the repayment trigger all live in the assistance program’s own note and deed.
So “what percent is forgiven each year” has no single national answer. Some public programs forgive a slice each year. Others forgive nothing for a long stretch, then everything at once. The network of programs we place files with counts on-time payments, not calendar years.
That distinction matters if you may move. A calendar-year schedule rewards you for a partial stay. A payment-count schedule asks whether you reached the finish line.
Across the wholesale programs we arrange, down payment assistance comes in four shapes. You can see them on Lendmire’s down payment assistance programs page. Here is how each behaves when a job transfer shows up.
| Shape | How it works | If you leave early |
|---|---|---|
| Grant | Released at closing, no lien | Nothing to repay |
| Forgivable second | Forgiven after 36 or 60 on-time payments | Note stays in play before then |
| Repayable second | Payments, balloon in year 10 | Balance paid at sale |
| Refinance-cost second | Covers costs of an FHA refinance | Balance paid at sale |
Each row is subject to program guidelines and full underwriting.
The first three shapes help you buy. The fourth is different. It is a repayable second lien that helps cover the closing costs of an FHA 203(b) refinance later. It equals 1% to 3.5% of the lesser of your current first-lien balance or the appraised value, with combined loan-to-value up to 104%. The credit floor is 660, or 670 blended. It is never used on a streamline refinance or to refinance an existing assistance loan. Its repayment terms match the repayable second, so a sale means the balance is paid from proceeds.
How the Forgivable Second Actually Works
The forgivable second is a loan secured against your home. It carries no interest and no monthly payment. It equals 3.5% of the lesser of the purchase price or the appraised value.
The clock is on-time payments on your first mortgage. You choose or are offered a three-year version (36 payments) or a five-year version (60 payments). Once you make that many payments with no 90-day-or-greater delinquency, the second is forgiven in full. Credit floors run 640, or 660 on a blended score, and the first lien can be FHA, USDA or HUD-184.
Notice what is missing. There is no promise that 20% disappears each year. There is no monthly burn-off. As the structure is built, the finish line is the 36th or 60th payment.
Run the numbers on a simple scenario. Say you buy with the three-year version and a new employer moves you after 30 payments. You are six payments short. Do not assume those 30 payments earn partial credit. Whether anything is credited, and whether the note comes due or stays in place after you move out, depends on the note’s wording. Read it before you sign.
Now say you picked the five-year version and move at payment 40. You are 20 payments short. The same questions apply, with more at stake.
Other public programs do prorate. The Urban Institute notes that most second-mortgage programs carry zero interest and no immediate payment, so forgiveness often arrives before any payment begins. That is the same family of structure, but each program sets its own waiting period.
Four Variables That Decide What You Owe
When a buyer asks how much stays forgiven if they leave, a practitioner checks four things in the note:
- Prorated or cliff. Does a slice vanish each month or year, or does everything vanish at the end?
- Years or payments. Is the clock calendar time or a count of on-time payments?
- The trigger. Does selling, renting out, refinancing or just moving out start the repayment?
- A hardship exception. Does the note carve out relocation, military orders or similar events?
Here is the catch with yearly proration. Under some schedules, selling a month before an anniversary can cost you the whole year’s credit. A cliff schedule makes this sharper. That is why the exact wording beats any rule of thumb.
FHA Treats a Forgivable Second as a Lien, Not a Gift
Buyers sometimes hear “forgivable” and file the money under gifts. That is a mistake. Financing that creates a lien on the property is secondary financing, not a gift, even with no monthly payment and even if the debt forgives over time.
That is not a trap. It just means the second lien gets underwritten and recorded like a loan. The FHA first mortgage still needs its 3.5% minimum investment, and the combined loan-to-value has to stay inside FHA’s limits.
When a government entity supplies the assistance, FHA lenders also collect extra paperwork. HUD Mortgagee Letter 19-06 spells out the documentation lenders gather to show a governmental entity is acting in a governmental capacity. You do not manage that. Your loan team does.
What Counts as Relocating?
Relocating is not one event. It covers several, and each treats the assistance differently.
| Situation | Effect on the assistance |
|---|---|
| Sell the home | Unforgiven balance paid from proceeds |
| Move out, keep it as a rental | Breaks the primary-residence term |
| Refinance before the clock ends | Review the second’s terms first |
| Job transfer, home stays yours | Clock continues only if you still live there |
| Military orders | Check the note for its own clause |
Owner-occupied primary residence is the only use these programs allow. Not a second home. Not a vacation home. Not a rental. If you might convert the house to a rental when you move, that is a conflict with the program’s purpose, and the second’s terms may treat it as a trigger.
FHA’s own occupancy rule often gets confused with the assistance term. That is an intent test at closing. It is separate from the assistance note’s clock, which is usually longer.
Military buyers get a first-lien exception. FHA lets service members meet the owner-occupancy test in specific ways. That exception applies to the first mortgage. It does not automatically rewrite a forgivable second, so ask whether the second carries its own military language.
Refinancing Before the Forgiveness Clock Ends
Refinancing is a relocation cousin. Maybe you do not move, but you want a new loan on your home.
With a USDA first mortgage, USDA’s handbook says a down payment assistance loan cannot be rolled into a new guaranteed loan. It has to be subordinated to the new loan or paid off. That affects timing if you are tempted to refinance in year two.
Do not guess here. If a refinance is on your radar, ask before closing, not after.
If You Might Move: Which Shape Fits?
This is the decision most buyers actually face. Short answer: the less certain your stay, the more the grant and the repayable second stand out.
Grant-style assistance. It equals 2% or 3.5% of the purchase price toward the FHA minimum investment. It is released at closing, with no lien, no payment and no interest. There is nothing to repay if you relocate. The credit floor is 620, and the first lien must be FHA, such as 203(b) or a 203(k) variant. Eligibility is household income at or below 140% of area median income, or a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers and homes in underserved census tracts. An HUD-approved homebuyer education course is required. It cannot be combined with another assistance program, and it is not offered in Washington.
Forgivable second. It costs nothing monthly, but a move before the 36th or 60th payment leaves you with the note. It fits a buyer who is fairly sure of a multi-year stay and wants no added payment.
Repayable second. It equals 3.5% or 5% of the lesser of price or value. At 5%, it covers closing costs and prepaids as well. It is interest-bearing, with a monthly payment, 30-year amortization and a balloon due in year 10. Credit floor is 660, or 670 blended. It is a true loan with its own disclosure. If you sell in year four, the balance is paid from proceeds, like any second mortgage. That is clear and predictable. It also adds a payment to your budget from day one.
Honestly, this one is a genuine toss-up for a buyer with a 50-50 chance of moving. The grant wins on flexibility if you qualify. The forgivable second wins on monthly cost if you stay. The repayable second wins on clarity of exit, with the price being a payment.
Do You Need to Be a First-Time Buyer?
No. None of these options requires it. Repeat and move-up buyers qualify. The three-year first-time definition is only one of the grant’s qualifying categories.
The second-lien options carry no income limit beyond USDA’s own on a USDA first lien. The grant is the one with the 140% area-median-income test, unless a qualifying category applies. No option can be paired with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options.
How to Find Your Exact Schedule
If you already have assistance, the answer sits in your closing file. Find these:
1. The note for the second lien. It states the forgiveness schedule and the repayment triggers.
2. The security instrument (deed of trust or mortgage). It states the occupancy term.
3. Your Closing Disclosure. It shows the second lien as its own loan.
4. Your payment history. On a payment-count schedule, count only on-time first-mortgage payments.
Then ask four plain questions of whoever holds the note. How is my clock counted? What counts as breaking occupancy? Is any hardship or military exception written in? How do I request a payoff figure before I list the home?
If you are shopping rather than closed, put those same questions to your loan officer before you choose a shape.
Common Mistakes When a Move Is Possible
- Treating “forgivable” as “free.” It is a lien until the clock finishes.
- Assuming FHA’s one-year occupancy rule is the assistance term. It is not.
- Counting calendar years on a schedule that counts payments.
- Renting the house out without checking whether that triggers repayment.
- Refinancing in the middle of the clock without asking about the second.
Key Terms Defined
Forgivable second lien. A second loan on your home that is erased in full after you meet its conditions, such as a set number of on-time payments.
Proration. Forgiving the debt in slices over time, such as monthly or yearly, instead of all at once.
Cliff schedule. A schedule where nothing is forgiven until the end, then the whole balance is forgiven.
Balloon. A lump sum due at a set date. On the repayable second, the balance comes due in year 10.
Primary residence. The home where you live most of the year. Only one home can qualify at a time.
Unforgiven balance. The part of the assistance you would still owe if you leave before forgiveness completes.
Frequently Asked Questions
Do I owe all of the assistance back if I move in year two?
It depends on the shape. A grant has nothing to repay. A forgivable second that is not yet forgiven stays in play, and whether it comes due or stays in place depends on the note. A repayable second is paid from sale proceeds.
Is the forgivable second forgiven a little each year?
Not in the structure we arrange. It is forgiven in full after the first 36 or 60 on-time first-mortgage payments. Other public programs may prorate, so read each note.
Can I rent the home out when I relocate?
Not safely. Assistance applies to an owner-occupied primary residence only. Leaving and renting the home out can breach the occupancy term, so check the second’s wording before you do it.
Do military orders erase the debt?
Not automatically. FHA’s first-lien rules have a military exception, but the assistance note sets its own terms. Ask whether it has a military clause, and do not assume one exists.
What if I might refinance before the schedule ends?
Ask first. On a USDA first mortgage, an assistance loan cannot be rolled into the new loan. It has to be subordinated or paid off. Other first liens have their own rules.
Next Step
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. Program availability is through wholesale lenders, subject to program guidelines and full underwriting. This is not a commitment to lend.
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. USDA Rural Development: Single Family Housing Loan Origination FAQ
2. Urban Institute: Expanding Down Payment Assistance Awareness
3. HUD FHA Connection: Secondary Financing Background
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: Do You Need Your Own Money for DPA on a 2-4 Unit Home? · How Much Own Funds a 2-4 Unit DPA Purchase Requires · Does a Relocating Buyer Owe Anything on a DPA When They Move?
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.