The Quick Read: Assistance is a separate pot of money that sits next to a government-backed first mortgage, and the first mortgage has to be built to accept it. It comes in four shapes: a grant with nothing to repay, a forgivable second loan, a repayable second loan, and a second loan that covers refinance costs. Each shape has its own credit floor and its own effect on your monthly budget. Despite the title, you do not have to be a first-time buyer for any of them, and the home must be your primary residence.
Key Takeaways
- Assistance is a percentage of the price or value, not a fixed dollar promise. Your file decides what you actually get.
- A grant has nothing to repay. A forgivable second is forgiven after on-time payments. A repayable second is a real loan with a payment and a balloon.
- No option requires you to be a first-time buyer. Repeat and move-up buyers qualify.
- The home must be your primary residence. Second homes, vacation homes and rentals are out.
- Two programs cannot be stacked. If you use one of these options, you cannot add another assistance program on top.
What Down Payment Assistance Actually Is
Assistance is money that helps you cover the minimum cash a lender wants from you at closing. It is not part of the first mortgage. The first mortgage comes from a lender. The assistance comes from a separate program and gets attached to the same purchase.
That distinction trips people up. An FHA, USDA or HUD-184 loan does not hand you the cash itself. Those programs set the rules for the first lien, which is the main mortgage that gets paid off first if the home is ever sold or foreclosed. The assistance then fills the gap between what you have saved and what the first lien requires.
Lendmire is a mortgage broker. It arranges these files through wholesale lenders, so the first mortgage and the assistance come from lending partners, not from Lendmire itself. The brokerage’s down payment assistance programs pair a grant-style, forgivable or repayable option with an FHA, USDA or HUD-184 first mortgage, subject to program guidelines and full underwriting.
Why does this matter? Because the shape you choose changes three things: what you owe later, what your monthly budget looks like, and what the lender checks first.
Public interest is growing. The Urban Institute reports that use of assistance among FHA borrowers tripled from 5 percent to 15 percent over the period it studied. A lot of buyers who could use it still never ask.
The Four Shapes
The four options trade off differently. Here is the side-by-side view, across the wholesale programs Lendmire works with.
| Factor | Grant | Forgivable second | Repayable second | Refinance-cost second |
|---|---|---|---|---|
| Amount | 2% or 3.5% of price | 3.5% of price or value | 3.5% or 5% of price or value | 1% to 3.5% of balance |
| Repay? | Nothing to repay | No payment, forgiven | Payment plus balloon | Same as repayable |
| Credit floor | 620 | 640 | 660 | 660 |
| First lien | FHA only | FHA, USDA, HUD-184 | FHA, USDA, HUD-184 | FHA refinance |
| Income test | 140% of area median unless a category applies | None of its own | None of its own | None of its own |
All of this is subject to lender guidelines. Credit floors use the representative score, which is the middle score a lender picks when it pulls your credit.
The grant
The grant is 2% or 3.5% of the purchase price, applied toward the FHA minimum investment. You owe nothing back. It is released at closing, with no lien, no payment and no interest.
It pairs only with FHA first liens: the standard 203(b), the repair-escrow version, and the limited and standard 203(k) renovation loans. The first lien runs at 96.5% loan-to-value, which means the mortgage covers 96.5% of the price or value. The grant is for one-to-four-unit homes, and a high-balance first lien does not qualify.
You need to meet one of these tests:
- Household income at or below 140% of the area median income.
- A qualifying category: first responder, educator, medical worker, civil servant, military personnel, first-time buyer, or a home in an underserved census tract.
An HUD-approved homebuyer education course is required. You pay for it up front, and the cost is credited back at closing. The grant is not offered in Washington.
The forgivable second
A forgivable second is a loan that behaves like a grant if you keep up with the mortgage. It equals 3.5% of the lesser of the price or the appraised value. There is no interest and no monthly payment.
The loan is forgiven after your first 36 or 60 on-time first-lien payments, depending on the version. On-time means no delinquency of 90 days or more. The credit floor is 640, or 660 with a blended score.
It pairs with FHA, HUD-184 or USDA first liens on one-to-two-unit homes. It carries no income limit of its own, beyond USDA’s income limits on a USDA first lien. Manual underwriting is allowed, so a thin credit file can still be reviewed by a person. No homebuyer counseling is required.
The repayable second
This one is a real loan. It is 3.5% or 5% of the lesser of price or appraised value. At 5%, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items.
The second is interest-bearing, with a monthly payment on a 30-year schedule and a balloon due in year 10. A balloon is a large lump sum due all at once when the term ends. Most buyers handle that by selling or refinancing before then.
There are no lender fees on the second itself. You pay only prepaid interest, recording, settlement and registration charges. You get a separate loan disclosure and a separate balloon disclosure for it.
The credit floor is 660, or 670 blended. High-balance first liens are allowed. Manual underwriting is not. The file has to get an automated approval.
The refinance-cost second
Not everyone is buying. This option helps with the closing costs of an FHA refinance. It is 1% to 3.5% of the lesser of your current first-lien balance or the appraised value.
It applies to FHA 203(b) refinances on one-to-four-unit homes, with the owner living in one unit. It is never used on a streamline refinance, and it cannot pay off an existing assistance loan. Terms match the repayable second.
How the First Mortgage and the Assistance Fit Together
The first lien is underwritten first, with the assistance in mind. Here is the sequence on a typical file.
1. Pick the first lien and the shape. FHA is the broadest fit. USDA and HUD-184 are available with the forgivable and repayable seconds.
2. Confirm the source of funds. The lender checks that the assistance comes from an acceptable source and structure for the first lien.
3. Run the automated underwriting. The system produces a finding. The assistance options follow that finding.
4. Count the payment. A repayable second adds a monthly payment, so it raises your debt ratios. A grant or a forgivable second adds no payment.
5. Collect the paperwork. Expect your application, the assistance commitment, proof of funds, and a homebuyer education certificate for the grant.
6. Close. The second lien is recorded behind the first. A grant is released at closing and leaves no lien behind.
What FHA expects from you
Under the assistance sits an FHA loan with standard requirements. FHA’s minimum required investment is 3.5 percent of the adjusted value. FHA also separates that number from total required investment, which adds the transaction costs you pay. You plan for both.
Mortgage insurance is part of the deal. The upfront premium is 1.75% of the base loan, and you can finance it into the loan. The annual premium varies by loan size and loan-to-value, and on higher-leverage loans it lasts for the life of the loan. Current one-unit FHA loan limits run from $541,287 to $1,249,125 depending on the county.
On manual underwriting, FHA’s debt ratios are 31/43. That means housing costs up to 31% of gross income and total debts up to 43%. Automated approvals often allow more, and the assistance options follow the automated finding.
Blended scores
On the second-lien options, a lower-scoring co-borrower’s representative score can be averaged in. That works when the primary wage earner brings in 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. The file still needs an automated approval.
Do You Have to Be a First-Time Buyer?
No. This is the most common misunderstanding. Repeat buyers and move-up buyers qualify for these options.
The three-year first-time definition is only one of the ways to qualify for the grant. Under it, you have had no ownership interest in a residential property in the three years before you apply. A homemaker or single parent whose only prior ownership was with a former spouse still counts.
Income limits depend on the shape. The grant uses the 140% area median income test unless you fall into a qualifying category. The second-lien options carry no income limit of their own.
Other rules are firmer:
- Primary residence only. You must live in the home. No second homes, vacation homes or rentals.
- No stacking. None of these options combines with another assistance program. A mortgage credit certificate is not permitted with the second-lien options.
- Property type. The grant covers one-to-four-unit primary residences, FHA-approved condominiums and planned unit developments. The second-lien options cover single-family detached and attached homes, condominiums and planned unit developments.
Programs from state housing agencies run on their own rules. CalHFA’s MyHome program in California is one example. It offers a deferred junior loan with occupancy, education and income requirements, and it runs through approved lenders. Programs like that stand apart from the options above, and you cannot layer them on top.
Where the General Rule Breaks
The mechanics above hold for most files. Here are the named exceptions that change the answer.
The grant and its exclusions. The grant does not combine with FHA High Balance, FHA $100 Down, FHA 203(h) disaster loans, FHA Good Neighbor Next Door, or FHA One-Time Close. It is also unavailable in Washington.
High-balance loans. If your county’s home prices push you into a high-balance first lien, the grant and forgivable second are out. The repayable second still allows it. Buyers in expensive counties tend to land here.
Manual underwriting. A borrower whose file only works by hand can use the forgivable second but not the repayable one. That is a real difference for thin-credit files.
Repairs. On the second-lien options, minor non-structural repairs up to $5,000 can be handled through an escrow holdback. The lender holds 150% of the repair estimate, and the work must be completed within the timeframe the lender sets, which varies by file and lender.
The balloon. The repayable second comes due in year 10. If you plan to stay beyond that, build a refinance or payoff plan on day one. The first mortgage may stay in place, but the second needs a way out.
Source of funds. FHA only accepts certain donors for gifts, and seller-funded assistance cannot supply the minimum investment. That is why assistance has to arrive through a properly structured program, not a side arrangement.
Refinances. The refinance-cost second only works with FHA 203(b) loans, caps combined leverage at 104%, and cannot be used on a streamline. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Choosing a Shape
There is no single right answer. Here are three buyers and the shapes that tend to fit them.
The renter with thin savings. A buyer with a 620 score and modest income often starts with the grant. Nothing to repay and no added payment keeps the budget clean. The tradeoff is the education course and the income or category test.
The repeat buyer moving up. Someone selling a starter home may not meet the first-time test. If income is under the area limit, the grant works. If not, the forgivable second’s 640 floor and lack of an income limit fit better.
The public-service worker. Teachers, nurses, firefighters and military personnel often qualify for the grant under a category, even above the income line. That makes the category test worth checking before assuming you earn too much.
When the forgivable second and the grant both fit, Lendmire’s comparison of a grant versus a forgivable second walks through the tradeoffs. If price is the question, Lendmire’s piece on purchase price limits for assistance covers how a home’s cost can rule an option in or out.
The repayable second suits a buyer who needs the extra 1.5% toward closing costs and can absorb a payment. It is the option where you are borrowing, and you should treat it that way.
A few cautions apply to all four:
- Assistance can raise your cash-to-close cushion and ease debt ratios, but it never replaces the need for a stable income and workable credit.
- The mortgage insurance on the FHA loan still applies.
- Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
- Programs change, and every file is underwritten individually.
Counseling is worth the time. For the grant, that is also where you find an approved course.
Key Terms Defined
First lien: The main mortgage, which gets paid first if the home is sold or foreclosed.
Second lien: A separate loan recorded behind the first. A repayable or forgivable assistance loan is a second lien.
Minimum required investment: The FHA minimum cash contribution, 3.5% of the lesser of the price or appraised value.
Forgivable: A loan that is wiped out after a set number of on-time payments on the first mortgage.
Balloon: A large lump-sum payment due at the end of a loan term, in year 10 on the repayable second.
Area median income: The middle household income for your county, used to test grant eligibility.
Blended score: A credit score that averages in a lower-scoring co-borrower, used on the second-lien options.
Next Steps
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. Lendmire is licensed for consumer lending in 16 states, including California. Call 828-256-2183 to talk through your situation. Any quote is subject to lender guidelines and is not a commitment to lend.
Frequently Asked Questions
Do I have to be a first-time buyer to use assistance?
No. None of the four options requires it. Repeat and move-up buyers qualify. First-time status is only one of several ways to meet the grant’s eligibility test, alongside the income test and the category list.
Is the assistance a gift I never pay back?
Only the grant is. It is released at closing with no lien and no payment. The forgivable second is a loan that is forgiven after 36 or 60 on-time payments. The repayable second is a true loan with a monthly payment and a balloon in year 10.
Can I use assistance on a rental or vacation home?
No. Assistance is for an owner-occupied primary residence only.
Will assistance raise my monthly payment?
It depends on the shape. A grant or forgivable second adds no monthly payment. A repayable second does, and lenders count that payment when they check your debt ratios.
Can I combine assistance with a state or city program?
No. None of these options stacks with another assistance program. If a state program fits better, such as one from a state housing finance agency, you would choose that instead of these options, subject to each program’s own rules.
For your own numbers, request a scenario review with Lendmire.
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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References
1. Urban Institute: Expanding Down Payment Assistance Awareness
2. HUD FHA Answers: minimum down payment requirement
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 With a Conventional First Mortgage · Down Payment Assistance Grant vs Forgivable Second for First-Time Buyers · Down Payment Assistance Documentation for First-Time Buyer Grants
Guides: Down Payment Assistance in California
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.