The Quick Read: A grant is the one form of assistance with nothing to repay. It is released at closing, with no lien, no payment and no interest. It pairs with an FHA first mortgage, and it is available to repeat buyers as well as first-timers. Income at or below 140% of area median, or a qualifying category such as a first responder, educator or underserved census tract, opens the door. The decision to make before an offer is whether a grant, a forgivable second or a repayable second fits your file.
Buyers rarely lose a house over the assistance itself. They lose it because the program was never matched to the first mortgage, or the file was opened after the contract was signed. This piece walks through how the grant works, how the other assistance shapes differ, and where the general rules break.
What a Down Payment Assistance Grant Is
A grant covers part of your required cash investment and is never a loan. Across the wholesale programs placed through Lendmire, grant-style assistance runs 2% or 3.5% of the purchase price. It goes toward the FHA minimum required investment. At closing it is released. No lien is recorded against the home.
Nothing to repay is not the same as no conditions. The grant has a credit floor of 620, an HUD-approved homebuyer education course, and an eligibility test. It is not offered in Washington. It also cannot be combined with another assistance program.
Agencies do not hand this money out. They set the rules it has to fit. HUD’s Section 184 borrower page makes the point from the other direction: the program guarantees loans, and borrowers are told to check with their tribe or state housing finance agency for help. The same logic runs through FHA and USDA. The government sets the first-lien rules. The assistance comes from somewhere else and has to fit them.
Lendmire is a mortgage broker licensed for consumer lending in 16 states. It arranges FHA, USDA and HUD-184 first mortgages with these options through wholesale lenders. Details below are subject to program guidelines and full underwriting, and nothing here is a commitment to lend. For the full menu, see Lendmire’s down payment assistance programs.
The Four Shapes of Assistance
Four structures exist in the network, and they behave differently on a file. The table puts them side by side.
| Shape | Size | Repayment | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | — | 620 |
| Forgivable second | 3.5% of lesser of price or value | Forgiven after 36 or 60 on-time payments | 640 |
| Repayable second | 3.5% or 5% of lesser of price or value | 30-year amortization, balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Same terms as repayable | 660 |
The forgivable second carries no interest and no monthly payment. It is forgiven when the first-lien payments are made on time for 36 or 60 months, with no delinquency of 90 days or more. It is still a lien. Sell or refinance before it burns off and the balance is a live issue at settlement.
The repayable second is a real loan. It carries interest, a monthly payment, a 30-year amortization and a balloon due in year 10. At 5%, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It gets its own loan disclosure and its own balloon disclosure. Manual underwriting is not allowed on it, so the file needs an automated approval.
The refinance-cost second is the odd one out. It helps with closing costs on an FHA refinance, 1% to 3.5% of the balance, with combined leverage up to 104%. It is never used on a streamline refinance or to refinance an existing assistance loan. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Do You Have to Be a First-Time Buyer?
No. None of the four options requires a first-time buyer. Repeat and move-up buyers qualify.
The confusion comes from the grant’s eligibility test. It is met by any one of the following:
- Household income at or below 140% of area median income.
- A first responder, current, former or entering service.
- An educator.
- Medical personnel, including nurses, doctors and hospital workers.
- A civil servant at the federal, state or local level.
- Military personnel, current, retired or volunteer.
- A first-time buyer, meaning no ownership interest in residential property in the three years before application.
- A property in an underserved census tract.
First-time status is one door among several. A repeat buyer who teaches school or works in a hospital gets through another one.
The forgivable and repayable seconds have no income limit of their own. The one exception is a USDA first lien, where USDA’s own income test applies. USDA’s guaranteed loan program offers 100% financing for a primary residence in an eligible rural area, with household income capped at 115% of area median.
One boundary matters. All of this is for an owner-occupied primary residence. Second homes, vacation homes and rentals do not qualify, ever.
How the First Lien and the Assistance Are Underwritten
Two loans, or one loan and a grant, move through the file together. Here is the sequence.
1. Pick the first lien. The grant pairs with FHA first liens only: FHA 203(b), repair escrow, Limited 203(k) and Standard 203(k), all at 96.5% loan-to-value, one to four units. The forgivable and repayable seconds also pair with USDA and HUD-184 first liens, on one to two units.
2. Test the FHA minimum investment. FHA calls the down payment the minimum required investment. It is 3.5% of the lesser of price or appraised value for a representative credit score of 580 or higher. The assistance options carry higher credit floors than that, so the assistance floor controls. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
3. Run the first lien through automated underwriting. The assistance options follow the automated finding. Manual underwriting is allowed on the forgivable second but not on the repayable one.
4. Layer in the FHA costs. The upfront mortgage insurance premium is a percentage of the base loan and can be financed into the loan. An annual premium also applies, set by loan size, term and leverage. On a 30-year loan above 95% loan-to-value at or below the base-loan line, the annual premium is a set percentage of the balance, and it stays for the life of the loan above 90% loan-to-value. These are program mechanics, not pricing offers.
5. Check the county limit. One-unit FHA loan limits run from $541,287 to $1,249,125 by county. The grant cannot be used with a high-balance first lien. The repayable second allows one. The forgivable second does not.
6. Complete education, if the grant. An HUD-approved homebuyer education course is required. The borrower pays up front, and the cost is credited back at closing.
7. Close with the assistance on the settlement statement. The grant shows as funds applied. A second lien is recorded and shows as a loan on the closing documents.
Credit scores work differently when there are two borrowers. On the second-lien options, a lower-scoring co-borrower’s score can be blended in when the primary wage earner earns at least 60% of household income and holds the higher score. The minimums then become 660 for the forgivable second and 670 for the repayable one. An automated approval is required.
Why a Forgivable Second Is Not a Gift
The general rule is that a gift has no strings. A forgivable second does have one: a lien. Underwriters treat any financing that creates a lien as secondary financing, even if the payment is zero and the balance later burns off. That is why it runs into combined loan-to-value and lien-position rules that a family gift never touches. HUD’s glossary for Handbook 4000.1 defines combined loan-to-value as the base loan plus all subordinate mortgage balances, divided by adjusted value.
The grant sits on the other side of that line. It creates no lien, so it creates no combined-leverage question. That is why buyers who qualify for it often prefer it over a second.
Where the General Rules Break
The clean description above has exceptions. These are the ones that show up on real files.
Charity-run programs are a different animal. FHA does not approve assistance programs administered by charitable organizations as a source of the required investment. A documented gift that meets FHA requirements is a separate matter. If a program asks you to route funds through a charity, ask the lender how the file treats it before you rely on it.
Government sources need paper. When a government entity provides assistance, the lender has to document that the entity had authority and acted within HUD’s rules. A law-firm summary of HUD’s documentation requirements describes proof of governmental authority and a dated attorney opinion. Lenders should confirm the current requirements against Handbook 4000.1, since this guidance has changed over time.
Balloons are normally barred on FHA seconds, with carve-outs. HUD’s Handbook 4000.1 Update 18 says the ten-year balloon prohibition does not apply to Federal Home Loan Bank Homeownership Set-Aside programs, and refines the balloon rules for governmental entities. That is why a repayable second can carry a year-10 balloon and still sit under an FHA loan.
USDA wants the assistance out of the way at refinance. On a USDA loan, secondary financing has to be subordinated or paid off in a later refinance. It cannot be folded into a new guaranteed refinance. USDA’s lender FAQ also says assistance is fine as long as the guaranteed loan stays in first-lien position.
HUD-184 does not give grants. The program guarantees loans for enrolled tribal members. Help with the cash comes from tribes, tribally designated housing entities or state agencies. When a second lien is paired with an HUD-184 first, it is the second lien doing that job, not the program itself.
Nothing stacks. No option combines with another assistance program. A mortgage credit certificate is not permitted with the second-lien options. The grant also cannot be used with FHA High Balance, FHA $100 Down, FHA 203(h), Good Neighbor Next Door or One-Time Close.
Funding can pause. Public and private funds open, close and run out. A file can be eligible on paper and still stall because money is not available when the buyer needs it. Ask the lender about funding status before you write an offer.
What the Buyer’s Decision Looks Like
Start with the question of what you need the assistance to do. Three situations come up most.
Thin savings, qualifying category. Say you are a nurse with a modest savings balance and a credit score in the mid-600s. The grant fits. Nothing is repaid, no lien is recorded, and the monthly budget does not change. The cost is the education course and the 620 credit floor.
Income above the limit, no category, strong credit. Say you are a repeat buyer with income over the 140% line who does not fit a category. The grant is out. A forgivable second might fit at 640, with the condition that you stay in the home through the forgiveness period.
Needs closing-cost help too. The repayable second at 5% covers the down payment and closing costs, at a price: a monthly payment that counts in your debt-to-income, and a balloon in year 10. The Urban Institute notes that assistance can solve cash-to-close problems and sometimes helps buyers who were turned down on debt-to-income, because it lowers the loan amount needed. It also notes that more than 1,600 programs exist, and many buyers never learn they may qualify.
The practical rule is simple. A grant costs you eligibility paperwork. A forgivable second costs you flexibility to sell or refinance early. A repayable second costs you monthly budget and a future balloon.
What to Settle Before You Write an Offer
Timing is where files go wrong. Assistance that is opened after a contract is signed can run into approval, education and funding gaps the closing date does not leave room for. Settle these first:
- Which first lien. FHA, USDA or HUD-184 decides which assistance shapes are even available.
- Your credit score. Compare your representative score with each floor: 620, 640, 660. Blended scores need an automated approval.
- Your eligibility path. Income against the area median, or a category you can document.
- Property type. The grant allows one to four units, FHA-approved condominiums and planned unit developments. The second-lien options cover single-family detached or attached, condominiums and planned unit developments. Unique property types are excluded.
- Repairs. The second-lien options allow minor non-structural repairs up to $5,000, with 150% of the estimate escrowed and the work completed on a timeline that varies by program and lender. A Limited 203(k) first lien carries renovation up to $75,000.
- Education. If you are going for the grant, find out how to book the course and who pays up front.
- Funding status. Ask whether funds are open right now.
On the seller’s side, ask how the assistance appears at settlement. The grant is applied at closing and the second is a recorded loan. The related Lendmire pieces on how to line up down payment assistance before your first offer and making a strong offer with assistance cover how that plays out at the negotiating table.
HUD-approved counseling agencies give independent advice, often at little or no cost, and the CFPB’s housing counselor directory lists them. Use one before touring homes if the choice between structures is not obvious.
Key Terms Defined
Minimum required investment: The cash an FHA buyer must put into the purchase, 3.5% of the lesser of price or appraised value at a representative score of 580 or higher.
Second lien: A loan recorded behind the first mortgage. If the home is sold or refinanced, it is paid from proceeds after the first.
Forgivable second: A second lien with no interest and no payment that is erased after a set number of on-time first-lien payments.
Combined loan-to-value: The first mortgage plus every other lien, divided by the home’s adjusted value.
Balloon: A lump-sum balance due at the end of a set term, year 10 on the repayable second.
Area median income: The midpoint household income for a county or metro area, used to set the income test for the down payment assistance grant. The test is generally 140% of area median income unless a category applies.
Representative score: The middle credit score used to qualify a borrower. On a joint file it is the lowest across borrowers unless a blended score applies.
Frequently Asked Questions
Can I get a down payment assistance grant if I am buying again?
Yes. Nothing in the network requires a first-time buyer. Repeat buyers qualify under the grant if household income is at or below 140% of area median, or if they fall in a category such as educator, medical worker, civil servant, military or first responder. Subject to program guidelines and full underwriting.
Does a grant ever have to be paid back?
Not as a loan. The grant is released at closing with no lien, no payment and no interest. The conditions are the 620 credit floor, the homebuyer education course, the eligibility test, and the limits on first liens and other programs. Ask the lender to walk you through every condition before you commit.
Can I use assistance on a rental or second home?
No. Assistance is for an owner-occupied primary residence only.
What is the difference between a forgivable and a repayable second?
A forgivable second carries no interest or payment and is forgiven after 36 or 60 on-time first-lien payments. A repayable second is a real loan with interest, a monthly payment, 30-year amortization and a balloon in year 10. The first needs a 640 credit floor, the second a 660 floor.
When should I start the process?
Before you tour homes. Education, income documentation, a first-lien approval and funding status all take time to line up, and a signed contract does not wait for them.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging government-backed purchase loans and the down payment assistance options that sit on top of them through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Section 184 Borrowers page
2. USDA Rural Development Single Family Housing Guaranteed Loan Program
3. Consumer Finance Monitor (HUD DPA documentation requirements)
4. Urban Institute, expanding down payment assistance awareness
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does Down Payment Assistance Change Your Payment If You Refinance? · How to Make a Strong Offer on a Home Using Down Payment Assistance · How Repeat Buyers Find Down Payment Assistance Programs
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.