The Quick Read: It depends on the structure, not the label. A grant with nothing to repay adds no payment. A forgivable second lien adds no monthly bill while it runs. A repayable second lien does add a payment, and lenders count it when they decide how much you can borrow.
What Are the Four Shapes of Assistance?
Down payment assistance (DPA) is money that covers part of your cash to close, usually paired with a government-backed first mortgage. It comes in four shapes, and each one touches your monthly budget differently. Lendmire arranges these through wholesale lenders, subject to program guidelines and full underwriting. Lendmire is the broker, not the lender.
Here is each shape in plain terms. You can see more on the down payment assistance programs page.
The grant. It covers 2% or 3.5% of the purchase price toward the FHA minimum investment. Nothing is repaid. There is no lien, no interest and no payment. It is released at closing. Available terms vary by lender, borrower profile, property type, and full underwriting review.
The forgivable second. This is a loan secured by a lien on your home. It equals 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is forgiven after 36 or 60 on-time payments on your first mortgage, depending on the version.
The repayable second. This is a real second loan. It covers 3.5% or 5% of the lesser of price or value. At 5%, the extra 1.5% goes toward closing costs and prepaids. It bears interest, requires a monthly payment, and amortizes over 30 years. A balloon comes due in year 10.
The refinance-cost second. It covers 1% to 3.5% of your current balance toward the costs of an FHA refinance. Repayment terms match the repayable second.
None of these shapes requires you to be a first-time buyer. Repeat and move-up buyers qualify. All four are for an owner-occupied primary residence only.
The Side-by-Side Answer
This table shows how each shape touches your monthly payment.
| Shape | Adds a payment? | Lien on home? | At sale or refinance |
|---|---|---|---|
| Grant | No | No | Nothing to repay |
| Forgivable second | No | Yes | Repaid unless forgiven |
| Repayable second | Yes | Yes | Paid off, balloon in year 10 |
| Refinance-cost second | Yes | Yes | Paid off, balloon in year 10 |
Read the “Lien on home?” column twice. A forgivable second leaves your monthly bill alone. It does not leave your title alone.
How Does Each Piece of Your Monthly Payment Change?
Your monthly payment has four parts. They are principal and interest on the first mortgage, any second-lien payment, mortgage insurance, and taxes plus homeowner’s insurance. Assistance touches each part a little differently.
Principal and interest on the first mortgage. On an FHA purchase, the first lien runs at 96.5% of price when you put down the 3.5% minimum. A grant or a second lien pays that 3.5%. So your first mortgage is the same size with either one. Assistance does not shrink the first loan. It supplies the cash you would have brought.
The second-lien payment. This is where the shapes split. The grant has none. The forgivable second has none. The repayable second and the refinance-cost second each add one.
Mortgage insurance. FHA charges an upfront premium of 1.75% of the base loan, which you can finance into the loan. It also charges an annual premium, billed monthly by loan size and leverage. The assistance does not change those mechanics. The first loan is the same size either way, so the insurance stays the same too.
Taxes and homeowner’s insurance. Assistance does not touch these. They follow the home, not the funding source.
So the grant and the forgivable second produce the same monthly payment. The repayable second produces a larger one. Ask for your payment with assistance and without it, then compare the totals.
Does a Repayable Second Affect How Much You Can Borrow?
Yes. A repayable second adds a bill, and lenders count that bill when they test your budget. Government loan rules have long said so. An older HUD handbook lists payments on acceptable secondary financing as part of the total mortgage payment. The newer rules are different, but the concept holds. USDA’s handbook on ratio analysis also lists subordinate liens in the housing expense.
In practice, this means your housing ratio and total debt ratio both rise. A higher ratio can shrink the price range you qualify for. FHA manual underwriting uses 31/43 ratios. Automated approvals often allow more, and the assistance options follow the automated finding.
A forgivable second works differently. It has no required payment, so there is no monthly obligation to count. Your file still carries the second lien, and the lender still reviews it. The “no payment” label helps your ratios. It does not take the loan off the file.
Here is a picture. Two buyers want the same home. One takes a grant. The other takes a repayable second. They bring in the same income and the same debts. The second buyer starts with a higher housing ratio and less room to spare. If that buyer is close to the limit, the repayable second may lower the price they can reach.
When Does a “No-Payment” Second Still Cost You?
It costs you at the end of the road. A forgivable second does not charge monthly, but it comes with a clock. You earn forgiveness by making your first-mortgage payments on time. The clock runs 36 or 60 payments, depending on the version. A delinquency of 90 days or more breaks that track.
Selling or refinancing before forgiveness is where people get surprised. Many public programs require repayment if you sell, refinance or stop living in the home before the forgiveness date. Some add a recapture period. Ask for the note terms before you sign, and ask what happens at each of those events.
A refinance deserves its own warning. Federal agency refinance rules treat a down payment assistance second as separate debt. It generally must be subordinated or paid in full. That can complicate a refinance, so plan for it.
State housing finance agency programs show how widely public structures range, from grants to zero-interest deferred seconds to fully amortizing loans. Many, though not all, are also forgivable over a set term. The labels vary by program. The note itself tells you what you actually owe.
The repayable second has its own end date. The balloon in year 10 means the remaining balance comes due then, so you would plan to sell, refinance or pay it off. The refinance-cost second carries the same balloon.
Is a Grant Really Free?
No. The grant option has nothing to repay, but it still comes with strings you should know about:
- Household income must be at or below 140% of the area median, unless a qualifying category applies.
- Qualifying categories include first responders, educators, medical personnel, civil servants, military personnel, first-time buyers, and buyers in underserved census tracts.
- A HUD-approved homebuyer education course is required. You pay for it up front, and the cost is credited back at closing.
- The grant pairs with FHA first liens only.
- It is not available in Washington.
- It cannot be combined with another down payment assistance program.
A word about the word “grant.” Some programs call a forgivable second a grant. If there is a note and a lien, it is a loan, however it is labeled. FHA treats any lien-secured second as secondary financing, not a gift. That is why the paperwork matters more than the marketing name.
Which Shape Fits Which Buyer?
Match the structure to your situation. This map is a starting point, not a guarantee of qualification.
| Buyer situation | Shape to look at first | Why |
|---|---|---|
| Payment-sensitive, credit 620+ | Grant | No second bill, no lien |
| Credit 640+, wants no payment | Forgivable second | No bill, no interest |
| Needs closing-cost help, credit 660+ | Repayable second at 5% | Covers costs, adds a payment |
| Refinancing an FHA loan | Refinance-cost second | Covers refinance closing costs |
Some other points on fit:
- Public-service workers. A first responder, educator, medical worker, civil servant or military member can qualify for the grant even above the income test.
- Buyers above the income test. The second-lien options carry no income limit, except USDA’s own limit on a USDA first lien. This is why a higher earner who does not fit a category often looks at a second.
- Buyers using USDA or HUD-184. The forgivable and repayable seconds also pair with USDA and HUD-184 first liens. The grant does not.
- Buyers with a co-borrower. On the second-lien options, a lower-scoring co-borrower’s score can be averaged in. This applies when the primary wage earner earns at least 60% of household income and holds the higher score.
Where Does HUD-184 Fit In?
The Section 184 program is a guaranteed loan for eligible Native American borrowers. HUD’s Section 184 handbook says the program does not itself provide down payment assistance or grants. Help comes from other sources.
The forgivable and repayable seconds discussed here can sit behind an HUD-184 first lien. The same payment logic applies. A repayable second adds a bill, and a forgivable one does not.
What About Overextending Yourself?
Assistance can tempt you to buy more house than your budget supports. The CFPB makes the general point in its guidance on down payment money: borrowing your down payment increases your overall debt and monthly payments.
Cash at closing and payment each month are different things. Assistance cuts the first. Only a grant or a forgivable second leaves your monthly total alone. A repayable second can cut your closing cash while raising your monthly total. That is a fine trade for some buyers and a stretch for others.
Before you commit, test the larger payment against your real budget. Include repairs, utilities and a cushion for surprises. If the monthly figure feels tight with a repayable second, step back to a smaller loan or another shape.
What Should You Check on Property and Repairs?
The grant covers one-to-four-unit primary residences, FHA-approved condominiums, and PUDs. The second-lien options cover single-family detached or attached homes, condominiums and PUDs. Unique property types are excluded.
The second-lien options allow minor non-structural repairs through an escrow holdback of up to $5,000. The escrow holds 150% of the estimate, and the work must be finished within the timeframe set by the program and lender. Larger renovation plans can use an FHA 203(k) first lien. A Limited 203(k) carries renovation up to $75,000.
Key Terms Defined
Second lien. A second loan secured by your home, ranked behind the first mortgage. It is repaid after the first loan if the home is sold.
Forgivable second. A second lien that is erased after a set number of on-time first-mortgage payments.
Balloon. A lump sum due at a set date, here in year 10 of the repayable second.
Amortization. Paying a loan down in regular monthly installments over time.
Minimum required investment. The 3.5% of price or value that FHA expects you to put into the purchase.
Combined loan-to-value. The first loan plus the second loan, measured against the home’s value.
Housing ratio. Your monthly housing costs divided by your monthly income.
Questions to Ask Before You Sign
Bring this list to your loan officer:
1. Is this a grant with nothing to repay, or a second lien with a note?
2. Does the second require a monthly payment? Does it amortize?
3. What is my full monthly payment with and without assistance?
4. When does the balloon or forgiveness date arrive?
5. What happens if I sell, refinance or move out early?
6. Does my price range change if the second payment counts in my ratios?
7. Can I use this assistance with my chosen first mortgage?
Also ask about an HUD-approved housing counselor. The CFPB’s guidance on piggyback seconds points buyers to approved counseling agencies through its Find a Counselor tool. Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Does a second mortgage DPA always mean two payments?
No. A forgivable second has no monthly payment and no interest. Only the repayable second and the refinance-cost second add a payment. Check the note before you assume either way.
Can I use down payment assistance if I already own a home?
Often yes. None of the options requires a first-time buyer, so repeat and move-up buyers qualify. The home must be an owner-occupied primary residence. Assistance is not available for second homes or rentals.
Will I owe the second if I refinance?
Usually, yes. A refinance generally requires the second to be paid off or subordinated. A forgivable second that has not yet been forgiven can come due. Ask about this before you take the loan.
Does a grant lower my mortgage insurance?
Not directly. Your FHA first loan stays at 96.5% of price whether the 3.5% comes from savings or assistance. The upfront premium is 1.75% of the base loan, and the annual premium follows loan size and leverage. The assistance does not change those figures.
Can I combine two assistance programs?
No. None of the options can be combined with another down payment assistance program. A mortgage credit certificate is also not permitted with the second-lien options. Pick the one that fits your situation best.
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. Assistance is for owner-occupied primary residences only. Consumer lending runs through licensed channels in 16 states, and the grant is not offered in Washington. Everything depends on lender guidelines and full underwriting. Nothing here is a commitment to lend.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps home buyers in 16 states pair an FHA, USDA or HUD-184 first lien with a down payment assistance option arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD – Handbook 4155.1 Ch. 4 Sec. F (archived)
2. USDA RD – HB-1-3555 Ch. 11 Ratio Analysis
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: 15-year Vs. 30-year Mortgage: Which One Is Right For You? · How To Qualify For Down Payment Assistance As A Repeat Buyer · Does a Grant or Repayable Second Skip the Occupancy Requirement?
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.