The Quick Read: A grant leaves you with nothing to repay and puts no lien on your home. A forgivable second is a real loan that disappears only if you keep your first mortgage current for a set stretch. The grant suits buyers who want clean title and may move or refinance soon. The forgivable second suits buyers who can stay put for three to five years, need a USDA or HUD-184 first loan, or earn above the grant’s income test with no qualifying category. Both are arranged through wholesale lenders, subject to program guidelines and full underwriting.
Key Takeaways
- A grant is released at closing with no lien, no interest and no payment. You owe nothing back.
- A forgivable second is a lien on your home. It is forgiven after 36 or 60 on-time first-mortgage payments, and it carries no interest and no monthly payment.
- The grant pairs only with FHA first mortgages. The forgivable second also pairs with USDA and HUD-184.
- The grant has an income test, but a qualifying category can replace it. The forgivable second has no income limit beyond USDA’s own on a USDA loan.
- Both are for an owner-occupied primary residence.
Side-by-Side
Here is the comparison most buyers want. These two options sit among the down payment assistance programs Lendmire arranges as a mortgage broker. Each is described as a percentage of price or value, because no one can promise you a dollar amount before underwriting.
| Factor | Grant | Forgivable Second |
|---|---|---|
| Repayment | Nothing to repay | Forgiven after 36 or 60 on-time payments |
| Lien on the home | None | Recorded second lien, 30-year term |
| Interest and monthly payment | None | None |
| Amount | 2% or 3.5% of price | 3.5% of lesser of price or value |
| Credit floor | 620 | 640 (660 with blended scores) |
| Income test | 140% of area median, or a category | None beyond USDA’s on a USDA loan |
| First-lien pairing | FHA only | FHA, USDA, HUD-184 |
| Counseling | Education course required | No counseling requirement |
| Units | 1-4 | 1-2 |
| Where offered | Not offered in Washington | Subject to state licensing |
Two rows deserve a second look. The credit floor is lower on the grant, which surprises people. The tradeoff is that the grant only works with FHA, and it carries the income test.
Researchers at the Urban Institute have found that many eligible buyers never learn this kind of help exists. Starting with the right comparison is half the battle.
Why They Look Identical on Closing Day
On closing day, both options shrink the cash you bring to the table. Neither adds a monthly payment on the second. Your statement looks the same either way.
The difference sits in your county records. A grant leaves no trace on title. A forgivable second is recorded behind your first mortgage as a lien. That lien stays until the forgiveness schedule finishes or the balance is paid.
The FDIC’s affordable lending guide describes assistance in several shapes. These include forgivable grants, zero-interest deferred seconds and fully amortizing seconds. It also notes that grant-style funds can run out sooner than loan-style funds, which get replenished as borrowers repay.
Labels can mislead. In a federal rulemaking on the HUD-184 loan program, commenters noted that many tribal “grants” are actually awarded as forgivable second mortgages. So read the paperwork, not the brochure. A true grant has no note and no recorded lien. A forgivable second has both.
What Happens at Sale or Refinance?
This is where the options part ways. Picture the three stages of a forgivable second.
At closing. The lien is recorded. You owe nothing monthly and no interest builds.
During the forgiveness window. The lien stays on title until you complete the 36 or 60 on-time first-lien payments. A sale or refinance in that window means the lien has to be dealt with. The note you signed spells out how. Read it before you sign, not when you list the house.
After forgiveness. A buyer who keeps the first mortgage current, with no payment 90 or more days late, is released. The lien no longer stands in your way.
Now picture a buyer with the grant. The grant has no lien, so no stage affects a sale or refinance. A buyer who moves for work in year two has one less thing to untangle.
Say you buy and get a job transfer after about two years. With a grant, you sell the way any owner would. With a 60-payment forgivable second, you are partway through the schedule, so the open lien enters the sale. That is the practical difference, and it is why time horizon drives this choice.
When the Grant Is the Better Fit
You may move or refinance on short notice. No lien means no schedule to outrun. A buyer who expects a career change, a growing family or a refinance has more room to maneuver.
You want clean title. Some buyers simply prefer no second lien in the records. The grant delivers that.
Your score sits in the low 620s or 630s. The grant’s credit floor is 620. The forgivable second starts at 640. That 20-point gap decides some files.
You want a smaller piece. The grant comes as 2% or 3.5% of the price, so you can match it to the cash gap you actually have.
You are a public-service worker, educator, medical worker or military member. These are among the qualifying categories that replace the income test. A first-time buyer or a buyer in an underserved census tract can qualify the same way. If none apply, household income at or below 140% of area median income works. Your income only has to meet one of these paths, not all of them.
You are buying a small multi-unit home you will live in. The grant allows one to four units on an FHA first mortgage. You must occupy the property as your primary residence.
The catches are real. The grant pairs with FHA first mortgages only, at 96.5% loan-to-value, and with no high-balance first lien. You must finish an HUD-approved homebuyer education course. The grant is not offered in Washington. It also cannot be combined with certain other FHA products or any other assistance program.
When the Forgivable Second Is the Better Fit
Your first mortgage is USDA or HUD-184. The grant does not pair with either one. The forgivable second does. For a rural buyer or a buyer using an HUD-184 loan, this may be the only fit between these two options.
You earn more than the grant’s income test and have no qualifying category. The forgivable second has no income limit beyond USDA’s own limits on a USDA loan.
You plan to stay at least three to five years. The 36-payment version suits a buyer confident about three years. The 60-payment version suits a buyer who expects to stay longer. Both are forgiven only if the first mortgage stays current.
Your file needs manual underwriting. The forgivable second allows it. The repayable second does not.
You want no counseling step. The forgivable second carries no homebuyer counseling requirement. That is a convenience, though counseling still teaches useful things.
The catches here are also real. The second lien runs on a 30-year term. You need a 640 credit floor, or 660 if a lower-scoring co-borrower’s score is blended in. The home must be one or two units, and a high-balance first lien is not allowed. The forgiveness depends on your payment record, so a late payment of 90 days or more can derail it.
Is There a Third Option?
Yes, and it matters as a reference point. The repayable second covers 3.5% or 5% of price or value. At 5%, it also covers closing costs and prepaid items. It is a true loan. It carries interest, a monthly payment and a balloon due in year 10. It needs a 660 credit floor.
Buyers with tight monthly budgets usually steer away from the repayable second. Buyers who need the extra closing-cost help sometimes choose it anyway. That is a separate decision from the grant-versus-forgivable question.
Do You Have to Be a First-Time Buyer?
No. Across the wholesale programs Lendmire places files with, none of these options requires first-time status. Repeat buyers and move-up buyers qualify. The three-year first-time definition appears in only one place, as one of the grant’s qualifying categories. Lendmire’s piece Repeat-Buyer Down Payment Assistance vs First-Time-Only Grant Programs goes deeper on that.
One rule holds across every option. The home must be your owner-occupied primary residence. A second home, vacation home or rental does not qualify.
What About State and Local Programs?
Many states and cities run their own help. Some state housing finance agencies, such as Virginia’s Department of Housing and Community Development, offer deferred loans with their own income and price rules. Others, like the Arkansas Development Finance Authority, run home loan programs with assistance attached. Terms differ widely, and many programs cap the amount and add recapture periods.
These are separate programs. Nothing here stacks with another assistance program, so you pick one path per purchase. Compare your options before you apply.
What the File Needs
A strong file looks the same for either option at the start. Then the paths split.
The grant sits on an FHA first mortgage. The forgivable second sits on an FHA, USDA or HUD-184 first mortgage. For the FHA examples here, the minimum required investment is 3.5% of the lesser of price or appraised value. An upfront mortgage insurance premium applies to the base loan and can be financed into the loan. An annual premium also applies, set by loan size and leverage. One-unit FHA loan limits vary by county.
Then the file needs:
- A completed application and the usual income, asset and credit documents.
- An automated underwriting system (AUS) finding. The AUS is the software lenders use to review a file. Both options follow its findings.
- For the grant: a HUD-approved homebuyer education course. You pay up front, and the cost is credited back at closing.
- For the forgivable second: a note and a recorded lien, and a credit score that clears 640.
- Proof that the home is your primary residence.
For a home that needs minor work, the second-lien options allow escrow holdbacks. The cap is $5,000 for minor non-structural repairs, with 150% of the estimate escrowed.
Three Mistakes Worth Dodging
Trusting the label. “Grant” on a flyer may describe a forgivable loan. Ask for the note.
Ignoring your time horizon. A forgivable second is a good deal for a buyer who stays. It is a clumsy one for a buyer who sells in year two.
Assuming you can combine help. You cannot pair either option with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options. Pick one.
Key Terms Defined
Grant: Money toward your purchase that you do not repay. It leaves no lien and no payment.
Forgivable second: A second loan, recorded behind your first mortgage, that is forgiven if you meet its conditions.
Lien: A recorded legal claim on your home. It must be cleared when you sell.
Minimum required investment: The share of the price you must put in on an FHA loan, 3.5% in these examples.
Blended score: An averaged credit score used when a lower-scoring co-borrower joins the file under set conditions.
AUS finding: The automated underwriting system’s decision on your file.
The Balanced Verdict
Neither option wins on every file. The grant gives flexibility. The forgivable second gives reach. If you may move soon, want a clean title or sit near the lower credit tier, the grant usually fits better, provided you are using an FHA first mortgage and live outside Washington. If you need USDA or HUD-184, earn above the income test with no category, or plan to stay for years, the forgivable second often wins.
When both fit, the question comes down to how long you will own the home. Stay three to five years and the lien disappears. Leave sooner and the grant would have been simpler.
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. You can reach the team at 828-256-2183. Qualification is subject to lender guidelines, credit approval and property review. This is not a commitment to lend.
Frequently Asked Questions
Is the grant really something I never repay?
Yes, with these programs. The grant is released at closing with no lien, no interest and no monthly payment. Other programs sometimes use the word “grant” for a forgivable loan, so always compare the note and the title record before you rely on a label.
Does a forgivable second count against my debt ratios?
Typically not as a monthly payment, because it carries no interest and no payment. The lender’s underwriting still reviews the file, and the AUS finding governs. Ask your loan officer how the second lien will be treated in your file.
What if I refinance before the forgiveness period ends?
The lien stays on title until forgiveness is complete or the balance is paid. A refinance during that window means the lien has to be dealt with. Read the note before you sign, and talk through your plans with your loan officer.
Can I use both the grant and the forgivable second?
No. Nothing in this lineup stacks with another assistance program, and that includes these two options. You choose one path per purchase.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify. First-time status is only one of the grant’s qualifying categories, and the forgivable second has no such requirement.
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. Urban Institute, Expanding Down Payment Assistance Awareness
2. FDIC Affordable Mortgage Lending Guide, Down Payment Assistance
3. Federal Register, Strengthening the Section 184 Indian Housing Loan Guarantee Program
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 to Use Down Payment Assistance Again After Selling Your First Home · Repeat-Buyer Down Payment Assistance vs First-Time-Only Grant Programs · How to Line Up Down Payment Assistance Before Your First Offer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.