The Quick Read: Down payment assistance is priced by its structure, not by the size of the headline number. A grant carries nothing to repay but comes with eligibility tests and a homebuyer course. A forgivable second is a lien that disappears if you keep paying on time. A repayable second is a real loan with a real payment and a balloon. Which one costs you least depends on how long you plan to stay and what a second lien does to your monthly budget.
Most buyers ask the wrong question first. They ask how much assistance they can get. The better question is what the assistance costs, and where that cost lands. It might land in a monthly payment, in a balloon due years from now, in a clock you have to run out, or in a few eligibility rules. This article walks through the mechanics step by step, from the first mortgage up.
Everything here is for buying a primary residence you will live in. Assistance does not apply to second homes or rentals.
Key Terms Defined
- First lien: the main mortgage, which gets paid first if the home is sold or foreclosed.
- Second lien: a smaller loan recorded behind the first mortgage and secured by the same home.
- Forgivable second: a second lien with no interest and no payment that is erased after you meet its conditions.
- Repayable second: a second lien with interest, a monthly payment and a balloon due at the end of its term.
- Balloon: the remaining balance due in one lump sum at a set date.
- Area median income: the midpoint household income for your county, used for grant eligibility tests.
- Representative credit score: the middle score used to qualify the loan, rather than your highest.
Key Takeaways
- There are four shapes of assistance: a grant, a forgivable second, a repayable second, and a second for refinance costs.
- Assistance is always a percentage of price or value, never a fixed promise in dollars.
- You do not have to be a first-time buyer. Repeat and move-up buyers qualify.
- Nothing stacks with another assistance program, and every option requires an owner-occupied primary residence.
- The first mortgage underneath is an FHA, USDA or HUD Section 184 loan, and its rules still apply.
Where Does the Cost of Assistance Actually Sit?
The cost sits in the structure. Public programs generally come in a few shapes, including forgivable grants, zero-interest deferred “soft seconds,” and full-interest amortizing second loans. Structure varies by state and program.
Across the wholesale programs Lendmire places files with, the four shapes line up like this, subject to program guidelines and full underwriting.
| Shape | Size | Repay? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of lesser of price or value | Forgiven after 36 or 60 payments | 640 |
| Repayable second | 3.5% or 5% of lesser of price or value | Yes, with a balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance or value | Yes, same terms as repayable | 660 |
Each row prices the help differently. The grant costs you paperwork and a course. The forgivable second costs you time. The repayable second costs you a monthly payment and a year-10 deadline.
The First Lien Comes First
Every option sits on top of a government-backed first mortgage. The first lien sets the main balance, the mortgage insurance, and the core underwriting rules. The assistance is layered on afterward.
With FHA underneath, the minimum investment is 3.5% of the lesser of price or appraised value, so the first lien runs at 96.5% leverage. An upfront mortgage insurance premium is typically financed into the loan, and an annual premium applies by tier. One-unit FHA loan limits for 2026 vary by county.
Pairing matters. The grant pairs with FHA first liens only. The forgivable and repayable seconds also pair with USDA and HUD-184 first mortgages. Many public programs work the same way, tying assistance to certain first mortgages. Urban Institute and Down Payment Resource data note that FHA and USDA loans are the most likely to be eligible.
How Is a Grant Priced?
A grant is priced in eligibility, not repayment. It is 2% or 3.5% of the purchase price, applied toward the FHA minimum investment. It is released at closing with no lien, no payment and no interest.
The price you pay shows up in four places:
- Credit: a representative score of 620 or higher.
- Income or category: household income at or below 140% of area median income, unless you fall into a qualifying category.
- Education: a HUD-approved homebuyer course. You pay up front, and the cost is credited back at closing.
- Exclusions: it cannot be combined with FHA High Balance, FHA $100 Down, or any other assistance program. It is not offered in Washington.
The qualifying categories are broader than most buyers expect. They include first responders, educators, medical personnel, civil servants, military personnel, first-time buyers, and anyone buying in an underserved census tract. A buyer who earns above the income test can still qualify through one of those.
Is it “free”? Not exactly. The grant has nothing to repay, but you meet conditions to get it. Treat the label with some care, because some programs elsewhere call a forgivable lien a grant. The paper, not the name, is the test.
How Is a Second Mortgage Priced?
A second mortgage is priced in its lien terms. The two main versions behave very differently, so they deserve separate treatment.
The forgivable second
This is 3.5% of the lesser of price or appraised value. It has no interest and no monthly payment. It is fully forgiven after the first 36 or 60 on-time first-lien payments, with no delinquency of 90 days or more. The credit floor is 640, or 660 on a blended score.
Its cost is time. Sell, refinance or stop living in the home before the clock runs out, and the unforgiven balance is at risk. The National Housing Conference describes this kind of forgiveness as happening gradually over the term.
The Urban Institute found that most second-mortgage programs carry no interest and no immediate payments, with median forgiveness waits of several years. Market programs vary, so use that as context, not as a prediction of any one file.
The repayable second
This 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 prepaids. It is a real loan. It carries interest, a monthly payment, a 30-year amortization and a balloon due in year 10. It requires a separate loan disclosure and a balloon disclosure. The credit floor is 660, or 670 blended.
Its cost is the monthly obligation, which counts in underwriting. The USDA loan origination FAQ is explicit on this point: the second mortgage is entered in its automated underwriting system and its payment is included. If you want a closer look at how second-lien terms compare across assistance types, Lendmire’s guide to repayable second mortgage terms across down payment assistance types goes further.
One point favors this structure. It allows high-balance first liens, and it does not require a first-time buyer or an income test beyond USDA’s own. For a buyer who earns too much for the grant and has a strong file, that flexibility can matter.
The refinance-cost second
This one is narrower. It covers 1% to 3.5% of the lesser of the current first-lien balance or appraised value toward the closing costs of an FHA refinance. Combined leverage can reach 104%. It follows the same repayment terms as the repayable second. It is never used on a streamline refinance or to refinance an existing assistance loan.
How the Assistance Is Underwritten, Step by Step
1. Pick the first lien. FHA, USDA or HUD-184 sets the base loan and its rules.
2. Match the option to the loan. The grant needs FHA. The seconds also work with USDA and HUD-184.
3. Run the automated underwriting finding. The assistance options follow the AUS result. The repayable second does not allow manual underwriting. The forgivable second does.
4. Count the payment. A repayable second adds a payment to your debt load. A forgivable second does not.
5. Document the file. Expect the program note, the second lien, a subordination agreement, and a disclosure of terms. The grant adds a homebuyer course certificate.
6. Record the lien. A second lien is a second recorded loan, and it appears on your closing paperwork.
Program rules add a useful detail. Assistance funds are not treated as your own funds in the credit test, and the first lien must stay in first position. For HUD-184, the program guarantees loans and does not itself provide down payment assistance. Any help comes from a tribe or another source.
Which Structure Costs Less?
It depends on how long you stay and how tight your budget is. Think in three buyer profiles.
The buyer who plans to stay at least five years. A forgivable second may cost nothing in the end, since it is forgiven after 36 or 60 on-time payments. The three-year version is shorter, but check which one your file offers. If you might move before the clock runs out, that changes.
The buyer who earns too much for the grant. The 140% income test can rule out a household, though a qualifying category may still apply. If neither does, a second-lien option has no income limit beyond USDA’s own on a USDA first lien.
The buyer with a thin monthly budget. A repayable second adds a payment and a year-10 balloon. Think hard before choosing it. It can be the right answer if closing costs are the real barrier, since the 5% version covers them. It is the wrong answer if your debt-to-income ratio is already stretched.
A rough comparison on the same home:
| Factor | Grant | Forgivable second | Repayable second |
|---|---|---|---|
| Monthly payment added | None | None | Yes |
| Exit risk | None | Until forgiven | Balloon in year 10 |
| Income test | 140% of AMI or category | None beyond USDA’s | None beyond USDA’s |
| Homebuyer course | Required | Not required | Not required |
For a look at the payment side of this choice, see Lendmire’s piece Does a Grant or Second Mortgage DPA Raise Your Monthly Payment?.
Where the General Rule Breaks
The general rule is that a grant is more affordable and a repayable second is costliest. Here is where that fails.
- The grant is not available. It is not offered in Washington. It also cannot be combined with other assistance programs or with several FHA variants.
- Your credit is in the 640 to 660 range. That rules out the repayable second and may leave the forgivable second as the only fit.
- You need closing-cost help. The grant goes toward the minimum investment. The 5% repayable second covers closing costs and prepaids too.
- The source of FHA assistance is wrong. FHA allows assistance from government entities and approved nonprofits. HUD’s Handbook 4000.1 glossary defines a governmental entity as a federal, state or local agency or instrumentality. A source outside those categories does not fit.
- You later refinance. A USDA refinance cannot roll an assistance second into the new loan. It has to be re-subordinated or paid off.
- The home needs 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 file and lender.
Honestly, the repayable second is the hardest to call. It can look expensive. Yet for a buyer who would otherwise wait years to save closing costs, it may still be the better move. That is a genuine trade-off, not a clear verdict.
Common Misconceptions
“DPA is only for first-time buyers.” No option requires it. Repeat and move-up buyers qualify.
“A second mortgage always means a second payment.” Not the forgivable one. It carries no interest and no monthly payment.
“The assistance is my own money.” For USDA, it is explicitly not counted as your own funds.
“Any gift source works for FHA.” Only approved sources do.
“I can use it on a rental.” No. Assistance is for an owner-occupied primary residence only.
What the Lender Looks For
Expect questions about your representative credit score, your income against the program test, and whether the home is a one- to four-unit primary residence. For the second-lien options, property types include single-family detached or attached, condominiums and PUDs. The grant covers one to four units, plus FHA-approved condominiums and PUDs.
If a co-borrower has a lower score, a blended score may help the second-lien options, but only when the primary wage earner earns at least 60% of household income and holds the higher score. Approval through the automated system is required.
Frequently Asked Questions
Does down payment assistance raise my interest rate?
It can, depending on the program, which is why comparing quotes with and without assistance matters. Pricing is set by the wholesale lender and varies by file.
What happens if I sell before a forgivable second is forgiven?
The unforgiven balance can come due. The lien is forgiven only after the first 36 or 60 on-time first-lien payments, with no delinquency of 90 days or more. Sell or refinance before that, and you should plan to resolve the lien at closing.
Can I use assistance if I already own a home?
Yes. No option in the network requires a first-time buyer. You would still need to buy a primary residence, and the home you live in must be the one financed.
Is the grant really nothing to repay?
Yes, the grant is released at closing with no lien, no payment and no interest. You still need a 620 representative score, the income or category test, and the homebuyer course.
Can I combine assistance with another program?
No. Nothing stacks with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options.
Your 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. The brokerage’s down payment assistance programs page lays out the options, subject to program guidelines, full underwriting and lender approval. This is not a commitment to lend.
The cleanest way to compare is to ask for the terms of each structure on the same home and weigh them against how many years you honestly expect to stay.
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. USDA
2. HUD, Section 184 Policy Handbook, Loan Thresholds and Parameters
3. Urban Institute and Down Payment Resource data
4. National Housing Conference
5. Urban Institute, expanding down payment assistance awareness
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: How Much Down Payment Assistance Can You Get? · How a Deferred Second Mortgage Hits Your DTI With Down Payment Assistance · How A Repayable Down Payment Assistance Second Affects Your DTI?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.