The Quick Read: Debt-to-income (DTI) counts the payment due under the note, not the balance. A second lien with no scheduled payment normally adds nothing to your monthly debt, while a repayable second adds its full payment. The note’s terms decide the outcome, not the label on the program flyer. The lien still matters for your equity, your later refinance, and the closing file.
Key Takeaways
- DTI divides your monthly debt payments by your gross monthly income. A balance with no payment due is not a monthly payment.
- A grant leaves no lien and no payment. A forgivable second leaves a lien but no payment. A repayable second leaves both.
- A no-payment second is still a loan secured by your home. FHA does not treat it as a gift.
- If a “deferred” second starts payments later, or the lender must count a payment, the answer flips.
- Ask for the note terms and the provider’s approval letter before you shop for a house at a particular price.
What Does DTI Actually Count?
DTI counts recurring monthly payments against your gross monthly income. Gross means before taxes come out. A lender looks at two versions of the ratio.
The front-end ratio covers only the housing payment. That means the first mortgage principal and interest, property taxes, homeowner’s insurance, mortgage insurance, and association dues if any. The back-end ratio takes that housing payment and adds car loans, student loans, credit card minimums, and other monthly debts.
Notice the word “payment” in every line. A lender does not add your loan balances. A car loan with a large balance and a small payment moves the ratio less than a smaller balance with a big payment.
That one fact explains the whole topic. Whether down payment help touches your DTI depends on one question: does the loan have a payment the underwriter must count?
Four Shapes of Assistance, and Which Ones Carry a Payment
Lendmire’s team arranges four shapes of assistance alongside FHA, USDA and HUD-184 first mortgages through wholesale lenders. Each one treats your monthly budget differently. You can see the full menu on the down payment assistance programs page.
| Shape | Payment during the loan | Counted in DTI? | Key caveat |
|---|---|---|---|
| Grant | None, nothing to repay | No lien, no debt | FHA first lien only |
| Forgivable second | None, no interest | No scheduled payment | Lien stays until forgiven |
| Repayable second | Monthly, 30-year amortization | Yes, full payment | Balloon due in year 10 |
| Refinance-cost second | Monthly, same terms as repayable | Yes, full payment | FHA 203(b) refinance only |
The grant is the simplest case. It is 2% or 3.5% of the purchase price, released at closing. There is no lien, no payment, and no interest, so your DTI never sees it.
The forgivable second is the one people usually mean by “deferred.” It is 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is forgiven after the first 36 or 60 on-time first-lien payments, depending on the version, and it pairs with FHA, USDA, and HUD-184 first liens.
The repayable second is a different animal. It is 3.5% or 5% of the lesser of price or value, and at 5% it also covers closing costs and prepaid items. It is interest-bearing, amortizes over 30 years, and balloons in year 10. It is a real second loan, and the lender counts its monthly payment.
The refinance-cost second works like the repayable one, but it covers closing costs on an FHA 203(b) refinance. It runs 1% to 3.5% of the lesser of the current balance or appraised value. Combined leverage can reach 104%.
Nobody has to be a first-time buyer for any of these. Repeat and move-up buyers qualify. They are for owner-occupied primary residences only, never second homes or rentals, and nothing stacks with another assistance program. All of it runs through wholesale lenders, subject to program guidelines and full underwriting.
Key Terms Defined
Debt-to-income ratio (DTI): your monthly debt payments divided by your gross monthly income.
Front-end ratio: the housing payment alone, measured against gross income.
Back-end ratio: the housing payment plus all your other monthly debts, measured against gross income.
Deferred second: a second loan secured by your home where repayment waits until a later event, such as a sale, a refinance, or the end of a forgiveness period.
Lien: a lender’s legal claim on your property that stays in place until the loan is paid or forgiven.
Combined loan-to-value (CLTV): all loans secured by the home, added together, divided by the home’s value.
Balloon: a large lump sum due at the end of a set term, before the loan is fully paid down.
Automated underwriting system (AUS): software that reviews your file and returns an approval finding.
How Do the First Lien and the Second Get Underwritten?
Both loans go into one file, and the lender reviews them together. Here is how that runs, step by step.
1. Pick the first mortgage and the assistance shape. FHA, USDA, or HUD-184 comes first. Then the assistance fits the situation: grant, forgivable, or repayable.
2. Disclose the second at application. FHA expects secondary financing to be disclosed up front. A buyer who forgets to mention it creates a problem later.
3. Enter both loans in the AUS. The first lien goes in with its payment. The second goes in with whatever monthly payment the note requires. A forgivable second carries none. A repayable second carries a full payment.
4. Read the finding. The system measures your ratios against the program’s standards. The repayable second does not allow manual underwriting, so the AUS finding is the gate. The forgivable second allows manual underwriting.
5. Collect the paper. The file carries the provider’s approval letter, the note, and the recorded lien terms. Those documents show the amount, the deferral, the forgiveness schedule, and the occupancy covenant.
6. Close and record. The second is recorded behind the first. USDA’s guidance requires the guaranteed loan to stay in first position, and the same logic holds for the others.
The practical takeaway is simple. You do not get to choose how the second counts. The note’s terms tell the underwriter, and the underwriter follows the program.
Why Do Lenders Count the Payment but Not the Balance?
The agencies write their ratio rules around payments. The Consumer Financial Protection Bureau defines DTI as your monthly debt payments divided by your gross monthly income. It also notes that different loan products and lenders set different limits.
The agency handbooks then list what belongs in the housing payment. The older FHA handbook framework, HUD 4155.1 Chapter 4 Section F, includes payments for any acceptable secondary financing in the total mortgage payment. The key word is payments. That handbook is legacy, since newer FHA guidance has replaced it, but the logic carries forward.
USDA says the same thing in plainer terms. Its ratio analysis chapter lists “Subordinate Lien(s)” among the items in the proposed housing expense.
So here is the reasoning chain. The rules say scheduled payments on a second lien count. A forgivable second has no scheduled payment. So it adds nothing to the numerator. That conclusion is an inference from how the rules are written, not a one-line quote from any agency. It matches how the files work in practice.
The Catch: A Silent Second Is Still a Loan
Here’s the trap. No payment does not mean no consequence.
A forgivable second must still meet the program’s provider and documentation conditions, while a grant leaves no lien to review.
Three things still count even when the payment doesn’t:
- Combined leverage. The second adds to your CLTV, and programs set limits on it. USDA lets a soft second push CLTV past market value for down payment and closing costs. FHA bars cash back to you.
- Your equity. The lien balance comes out of proceeds when you sell or refinance. With forgivable assistance, the balance shrinks to zero if you stay through the forgiveness period and make the first-lien payments on time.
- Your paperwork. The second sits on title. It can come up when you refinance or apply for other credit.
Across the wholesale programs Lendmire places files with, this is the piece buyers miss. They hear “no payment” and assume “no strings.” The strings are real, but they are loan terms, not monthly bills.
Worked Comparison: Same Buyer, Three Ways
Take one buyer with a fixed income, a fixed purchase price, and an FHA first lien. Run the file three ways. The table below shows direction only. It uses no dollar figures, because your numbers will differ.
| Factor | No assistance | Forgivable second | Repayable second |
|---|---|---|---|
| Cash from you at closing | Highest | Lower | Lower |
| Monthly payment qualified | First lien only | First lien only | First lien plus second |
| Front-end ratio | Baseline | Same as baseline | Higher |
| Back-end ratio | Baseline | Same as baseline | Higher |
| Debt at sale | First lien only | First lien, plus second if not yet forgiven | Both loans |
The forgivable column is the one that surprises people. Your cash to close drops, and your qualifying ratios stay put. That is why this structure exists.
The repayable column trades differently. You still need less cash up front. But the second’s payment lands in the housing expense, and both ratios climb. A buyer already near the program’s limit may find the repayable structure trims the purchase price the file supports. A buyer with room to spare may not notice.
That tradeoff is worth thinking through out loud. A repayable second at 5% can also cover closing costs, so it can solve a cash problem the forgivable structure leaves open. But it asks more of your monthly budget. Which one wins depends on whether your constraint is cash on hand or monthly cash flow. For Lendmire’s team, that is usually the first question on the call. For a closer look at the repayable side, see Lendmire’s piece How a Repayable Down Payment Assistance Second Affects Your DTI.
Where the General Rule Breaks
“Deferred means no DTI impact” holds as a rule of thumb. These cases break it.
The deferral ends and payments begin. Some programs defer payments for a period, such as five years, and then switch to regular monthly payments. The National Housing Conference describes this pattern in its overview of down payment assistance. If a payment is scheduled to start, ask whether the underwriter must count it today. That is a program and lender question, not a guess you should make alone.
The “deferred” second accrues interest. Some second mortgages accrue interest even while payments are deferred, and some programs charge higher interest or fees. That does not change your monthly DTI. It does grow the balance you owe at sale.
The forgivable second is not truly forgiven yet. Forgiveness arrives only after the first 36 or 60 on-time first-lien payments, with no delinquency of 90 days or more. Miss that, and the second stays a debt.
The label doesn’t match the note. Programs use “deferred,” “silent,” “soft,” and “forgivable” loosely. The scheduled payment in the note is what counts. Read the note, not the brochure.
Someone else’s rule is different. Conventional guidance treats secondary financing differently. That is a conventional-loan contrast only. It does not describe FHA, USDA, or HUD-184.
FHA, USDA, and HUD-184: Different Ratio Rules
Each first-mortgage program sets its own ratio standards, and the second lien feeds into whichever one applies.
- FHA. Manual underwriting uses 31/43 ratios. AUS approvals commonly allow more, and the assistance options follow the AUS finding. The 3.5% minimum investment and 96.5% first-lien leverage sit underneath. The 1.75% upfront mortgage insurance can be financed into the loan, and annual mortgage insurance is part of your monthly housing payment. Current one-unit FHA limits run from $541,287 to $1,249,125 by county.
- USDA. The ratio chapter sets the proposed housing expense at no more than 29% of repayment income and total debts at no more than 41%. Those can be exceeded when the lender documents strong compensating factors.
- HUD-184. The program itself does not provide down payment assistance or grants, per the ONAP handbook, so any help comes from a tribe, a housing entity, or another source. The ratio guidance is a 41% ratio, or 43% with two or more compensating factors, and manual underwriting is noted.
USDA’s ratios are tighter than the FHA AUS tends to be. So a repayable second’s payment bites harder on a USDA file than an FHA one. That cuts the other way for the forgivable second: with no payment in the ratio, a USDA buyer keeps the same room they had before.
What Happens After Closing?
At sale. An unforgiven second comes due from your proceeds. A repayable second also comes due, along with the remaining first-lien balance.
At refinance. USDA’s guidance says a down payment assistance loan cannot be included in a new guaranteed loan. It must be subordinated or paid off. Expect any later refinance to need the second lender’s cooperation or a payoff. Plan for that before you plan the refinance.
At the balloon. A repayable second comes due in year 10. You will need to pay it, refinance it, or sell before then.
When you apply for other credit. A lender pulling your file for a car loan or a later mortgage sees the lien. A forgivable second with no payment adds nothing to monthly debt. A repayable second adds its payment.
When your situation changes. Both second-lien structures are for primary residences. Renting the home out or moving out does not fit the program’s terms, so talk to the servicer before you change how you use the property.
What to Ask Your Lender Before You Pick a Price
Take this short list to the conversation:
- Does the second carry any scheduled payment, now or later?
- Does the note accrue interest while deferred?
- How many on-time first-lien payments trigger forgiveness, and what counts as late?
- How does the second affect my combined loan-to-value?
- Does the program allow manual underwriting, or must the AUS approve the file?
- What will I owe if I sell or refinance before the second is gone?
- What documents do you need from the assistance provider?
Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
Is a Deferred Second Right for Your File?
It fits when your limit is cash at closing, not monthly budget. A renter with thin savings and a steady paycheck often lands here. It fits less well when you plan to sell or refinance soon, because the lien complicates both.
A grant fits when you meet the income test or a qualifying category, and you want nothing to repay. A repayable second fits when closing costs are the gap and your ratios have room.
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. Programs change, and every file is underwritten individually, subject to lender guidelines. This is not a commitment to lend.
Frequently Asked Questions
Does a forgivable second mortgage raise my DTI?
Not through a monthly payment, because it has none. Lenders count the payment due under the note, and a forgivable second has no interest and no payment. It still adds a lien and counts toward combined leverage, so it shows up in the file even though it stays out of your monthly ratio.
Is a deferred second the same as a grant?
No. A grant is released at closing with nothing to repay and no lien. A deferred second is a loan secured by your home, and FHA does not treat it as a gift. The two feel alike on your monthly budget, but they differ on title and at sale.
Can a repayable second push me over the DTI limit?
Yes. Its monthly payment goes into your housing expense, so both ratios rise. A buyer near the program limit may find it reduces the purchase price the file supports. Because the repayable second does not allow manual underwriting, the AUS finding is the test, subject to program guidelines.
Do I have to be a first-time buyer?
No. None of the four assistance shapes requires it. Repeat and move-up buyers qualify. The first-time definition is only one of several qualifying categories for the grant, which also has an income test at or below 140% of area median income unless a category applies.
Can I use assistance on a rental or second home?
No. These options are for owner-occupied primary residences only.
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
1. USDA
2. CFPB: What is a debt-to-income ratio?
3. National Housing Conference – DPA
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 A Repayable Down Payment Assistance Second Affects Your DTI? · Does a Grant or Repayable Second Skip the Occupancy Requirement? · FHA Loan CLTV and Second Lien Rules With Down Payment Assistance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.