The Quick Read: A grant costs nothing when you sell, and a second lien can cost you its full unpaid balance. The gap depends on which second you take and how long you stay. A forgivable second shrinks to zero if you keep the loan current for the full 36 or 60 payments. A repayable second is a real loan that comes due at a sale, a refinance, or in year 10.
Neither side of that comparison has one dollar answer. Assistance is a percentage of the price or value, so the exit bill scales with the home. This article shows how each structure behaves on exit day, so you can judge the gap for your own purchase.
What Does “Pays More on Exit” Actually Mean?
A grant leaves no lien behind, so nothing is owed when you sell. A second lien is recorded against the home, and it must be settled from sale proceeds or a refinance. That is the whole difference. Your monthly budget can look identical under a grant and a deferred second. The bill arrives later.
The National Housing Conference’s counseling guide makes the same point about silent seconds versus grants: repayment is typically deferred until resale, and sometimes until a refinance. A grant recipient keeps the assistance. A second-lien borrower repays it. The guide also flags the risk when values fall. If you owe more than the home sells for, a second may not be repayable in full.
Across the wholesale programs Lendmire places files with, the choice comes down to four shapes. Each exits differently.
| Shape | Lien? | Monthly payment | What you owe on exit |
|---|---|---|---|
| Grant | None | None | Nothing |
| Forgivable second | Yes, until forgiven | None | Unforgiven balance if you leave early |
| Repayable second | Yes | Yes | Remaining balance, or balloon in year 10 |
| Refinance-cost second | Yes | Same as repayable | Remaining balance at payoff |
The Four Shapes, Step by Step
Every option here sits on top of a government-backed first mortgage. The details of the down payment assistance programs Lendmire arranges through wholesale lenders differ in size, credit floor and exit terms, subject to program guidelines and full underwriting.
The grant: nothing to repay
The grant covers 2% or 3.5% of the purchase price toward the FHA minimum investment. It is released at closing. No lien, no note, no payment, no interest. The credit floor is 620. The first mortgage must be FHA, in the 203(b) family, and the grant is not offered in Washington.
Eligibility has one income test. Household income must be at or below 140% of area median income, unless you fall into a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers in an underserved census tract. A homebuyer education course is required. You pay for it up front, and the cost is credited back at closing.
That education requirement is a real step, not a formality. Plan for it before your contract date.
The forgivable second: a loan that disappears
The forgivable second is 3.5% of the lesser of the price or appraised value. It carries no interest and no monthly payment. It is forgiven after the first 36 or 60 on-time payments on your first mortgage, with no 90-day-or-worse delinquency. The credit floor is 640, or 660 on a blended score.
Until the last payment counts, it is a lien. Down Payment Resource draws the same line in consumer terms: a true grant has no lien, no note and no deed, while a forgivable second forgives over a set period. Sell or refinance in year two of a three-year term and the unforgiven balance can come due. Stay for the full term and it works like a grant.
This option also pairs with USDA and HUD-184 first liens, not only FHA. It has no income limit beyond USDA’s own on a USDA first lien.
The repayable second: a real loan
The repayable second is 3.5% or 5% of the lesser of price or value. At 5%, it also covers closing costs and prepaid items: the 3.5% minimum investment plus 1.5% toward closing costs. It carries interest, a monthly payment, a 30-year amortization and a balloon due in year 10. The credit floor is 660, or 670 blended. It has its own disclosure and a separate balloon disclosure.
Because it has a payment, it counts against you in qualifying. Federal guidance for FHA says the required monthly payments on the first and second liens must fit within your reasonable ability to repay, per HUD’s legacy underwriting handbook text. A grant and a forgivable second add nothing to that math.
The refinance-cost second
The fourth shape helps a buyer who already owns. It covers 1% to 3.5% of the lesser of the current first-lien balance or value toward the closing costs of an FHA 203(b) refinance, with combined leverage up to 104%. It is never a streamline and never used to refinance an existing assistance loan. Repayment terms match the repayable second. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
How the First Lien and the Assistance Are Underwritten
FHA is the foundation for most of these files. The minimum required investment is 3.5% of the lesser of price or value for a representative credit score of 580 or higher. The assistance options carry higher credit floors than FHA itself. First-lien leverage runs to 96.5%. An upfront mortgage insurance premium can be financed into the loan, and annual mortgage insurance applies by tier. The 2026 one-unit FHA limits vary by county.
Here is how the pieces fit, in order:
1. The first lien is set. FHA, USDA or HUD-184 provides the mortgage. None of the three agencies hands you the assistance. HUD’s Inspector General notes that HUD does not approve down payment assistance programs; the lender has to confirm the funds meet FHA requirements.
2. The assistance arrives as a gift or a second lien. FHA’s own glossary definition treats a gift as cash with no expectation of repayment. That is the grant. Anything repayable, even at the end of a forgiveness schedule, is secondary financing.
3. Payments are counted. A grant adds no payment. A forgivable second adds none unless you break its terms. A repayable second adds a payment that goes into your ratios.
4. Credit and automated findings are reviewed. The second-lien options follow the automated underwriting finding. Manual underwriting is allowed on the forgivable second but not on the repayable one.
5. Lien position is confirmed. USDA allows junior liens only when they will not interfere with repayment and were considered in underwriting.
On a USDA first lien, the lender enters the second’s monthly payment as a subordinate lien payment.
Here is the part many buyers miss. When a government entity supplies the funds on an FHA file, HUD requires documentation that the entity acts in its governmental capacity, under Mortgagee Letter 19-06. That paperwork is the lender’s job, but it explains why some programs take more documentation than others.
What Each Exit Trigger Does to Each Shape
Selling is the obvious trigger. It is not the only one.
Sale. The grant owes nothing. A forgivable second owes its unforgiven balance, and zero once forgiven. A repayable second owes its remaining principal. The balance comes out of proceeds before you see cash.
Refinance. A refinance can bring a second due, or require it to be subordinated behind the new first mortgage. USDA is firm here. Per its Chapter 16 guidance, assistance seconds cannot be rolled into a new guaranteed refinance. They must stay subordinate or be paid in full. FHA Streamline refinances have a similar limit on new subordinate financing. A grant is unaffected, since no lien exists.
Moving out or renting the home. All of this assistance is for an owner-occupied primary residence. Turning the home into a rental is a different use. The lien holder can treat a change in occupancy as a trigger, so read the note before you plan to convert. A grant has no such lien, but the occupancy you certified at closing still stands.
Payoff of the first mortgage. Paying off the first loan generally brings a second due as well.
Year 10 on the repayable second. The balloon arrives whether or not you sell. Plan a refinance or a sale before then. The monthly payments you made reduce the balance somewhat, but not to zero.
Worked Example: One Buyer, Three Structures
Take a buyer purchasing a home at a given price and receiving assistance at the percentage each option provides. No dollar figures are needed, because everything scales with price.
Under the grant at 3.5%, the buyer sells in year three and settles the first mortgage and normal selling costs. The assistance does not appear on the settlement statement. Net proceeds are whatever the sale yields after the first lien.
Under the forgivable second at 3.5% on a 36-payment schedule, a sale after month 36 looks exactly like the grant case. A sale in year two does not. The unforgiven balance, which is some or all of that 3.5%, comes out of proceeds first. On the 60-payment schedule, the same year-three sale still carries the full lien.
Under the repayable second at 3.5%, the buyer has paid on it monthly. At a sale in year three, the lender takes the remaining principal from proceeds. The balance is lower than the original 3.5% but not gone. At 5%, the lien is larger, since it also covered closing costs.
So how much more does the second pay than the grant? In the worst early-sale case, it pays the entire assistance percentage back. In the best case, a forgivable second after its schedule, it pays nothing more than the grant. A repayable second sits between, and it owes something unless you pay it off by other means.
Where Net Proceeds Get Thin
Equity matters here. A recorded second is repaid from sale proceeds, so it reduces your net equity dollar for dollar. If you sell in a flat or falling market, the proceeds can fall short of covering both liens plus selling costs. This is the downside the counseling guide describes, and it hits the second-lien shapes only. The grant never adds to what you owe.
A buyer with thin equity and a short expected stay is the one for whom the grant is clearly stronger. A buyer who expects to stay past the forgiveness schedule gives up little by taking the forgivable second instead. That is the break-even logic: the longer your expected stay, the smaller the gap.
Where the General Rule Breaks
The “grant is simple, seconds are costly” rule has exceptions.
The grant may not be available to you. It requires an FHA first mortgage, a 620 credit floor, the 140% income test or a qualifying category, and it is not offered in Washington. If you want a USDA or HUD-184 first lien, only the second-lien options pair with it.
The grant is smaller in some cases. Its 2% tier covers less than the 3.5% forgivable second. A buyer who needs more help at closing may find the larger assistance worth the lien.
The repayable second can cover closing costs. At 5%, it reaches costs the 3.5% options do not. If cash at closing is your real constraint, the larger second may be the only structure that closes the gap.
Credit decides first. A 620 score opens the grant. A 640 score is needed for the forgivable second, and 660 for the repayable one. A buyer at 625 cannot use a second-lien option regardless of preference.
Labels can mislead. Some public programs call their assistance a “grant” yet record a repayment restriction that applies on an early sale. Check for a recorded lien, a promissory note and a disclosure before assuming nothing is owed. The grant Lendmire arranges carries none of these, but programs elsewhere vary.
Deferred seconds may accrue interest. The forgivable second here carries no interest, but some public programs charge simple interest on a deferred second. Read the note.
It is not stackable. No assistance option combines with another assistance program, and no mortgage credit certificate pairs with the second-lien options. If you were counting on layering a state program, you need to choose one.
Who Fits Which Shape?
There is no single winner. Match the structure to your situation.
- Short expected stay, thin savings, FHA first lien. The grant fits, if you meet the income test or a category. Nothing follows you to the closing table at sale.
- Planned stay of three to five years or more. The forgivable second works like a grant if you hold the schedule. The risk is leaving early.
- Closing costs are the real obstacle. The 5% repayable second is the option that reaches them. Weigh the monthly payment and the balloon against the cash you save.
- USDA or HUD-184 first lien. The grant is off the table. Choose between the forgivable and repayable seconds.
- Existing FHA owner refinancing. The refinance-cost second covers some of the closing costs, with combined leverage to 104%.
None of this requires first-time-buyer status. Repeat and move-up buyers qualify. These options apply only to an owner-occupied primary residence, never a second home or rental.
Key Terms Defined
Grant: assistance released at closing with nothing to repay, no lien and no payment.
Forgivable second: a second lien that is canceled after a set number of on-time first-mortgage payments.
Repayable second: a second loan with interest, a monthly payment and a balloon due in year 10.
Subordination: the lien holder agreeing to stay behind a new first mortgage after a refinance.
Balloon: the lump-sum balance due at the end of a loan term, before the amortization would pay it off.
Minimum required investment: the 3.5% of price or value FHA expects the borrower to put in from allowed sources.
What to Ask For in Writing Before You Close
- Which shape you are receiving, and whether any lien is recorded.
- The forgiveness schedule, and what counts as an on-time payment.
- Every event that makes the second due: sale, refinance, payoff, change in occupancy.
- Whether the second lien holder will subordinate in a refinance.
- The balloon date and disclosure on any repayable second.
- Whether homebuyer education is required, and when.
An HUD-approved counselor can give independent advice on whether the terms fit. You can find one through the CFPB’s housing counselor tool.
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. Reach the team at 828-256-2183. Programs change, and every file is underwritten individually, subject to lender guidelines and not a commitment to lend. For readers also sizing a first loan, Lendmire’s piece How Much More Down Payment Keeps a W-2 Buyer Under the Jumbo Loan Limit covers a related leverage question.
Frequently Asked Questions
Do I have to pay a down payment assistance second back if I stay in the home?
It depends on the shape. A forgivable second is canceled after 36 or 60 on-time first-mortgage payments, so staying through the schedule means nothing is owed. A repayable second carries a monthly payment and a balloon in year 10, so staying does not erase it. Selling, refinancing or paying off the first mortgage can bring either second due.
Does a second change my monthly payment compared with a grant?
A forgivable second does not, because it has no payment and no interest. A repayable second does, since it is an amortizing loan whose payment counts in qualifying. The grant adds no payment either. Only the repayable shape moves the monthly budget.
What if I sell for less than I owe?
A recorded second is paid from sale proceeds, so thin or negative equity can leave it unpaid in full. This is the main hazard of the second-lien shapes. A grant carries no lien, so it adds nothing to your shortfall.
Can I refinance while I have an assistance second?
Usually only if the lien holder agrees to stay in second position or you pay it off. USDA does not allow assistance seconds to be rolled into a new guaranteed refinance. A grant is simply unaffected, because there is no lien to deal with.
Do I need to be a first-time buyer?
No. None of the options requires you to be a first-time buyer, so repeat and move-up buyers can qualify for every option. For the grant, the income test is 140% of area median unless a qualifying category applies. The second-lien options carry no income limit beyond USDA’s own on a USDA first lien.
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.
For your own numbers, request a scenario review with Lendmire.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. National Housing Conference, Housing Counseling Guide: Down Payment Assistance
2. Down Payment Resource, Know Your Programs
4. HUD, Handbook 4155.1 Ch. 5 Sec. C
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Down Payment Assistance Grant vs Forgivable Second for First-Time Buyers · How Much Down Payment Assistance High Earners Can Get With Student Debt · How to Use Down Payment Assistance on a 2-4 Unit Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.