The Quick Read: A repayable second is a real loan with a monthly payment, and the other assistance shapes are built differently. Across the wholesale programs placed with FHA, USDA and HUD-184 first mortgages, a grant has nothing to repay and no lien. A forgivable second has no payment and is forgiven on a schedule. A repayable second carries interest, amortizes over 30 years and balloons in year 10. That payment counts in your debt ratios, so it changes how much house you can qualify for. All of it is subject to program guidelines and full underwriting.
What Is a Repayable Second Mortgage?
A repayable second mortgage is a separate loan, recorded behind your first mortgage, that covers part of your down payment and sometimes closing costs. You make monthly payments on it. It is not a gift, and it is not forgiven.
Here is how the pieces fit on the files Lendmire arranges. The first mortgage is a government-backed loan: FHA, USDA or HUD-184. The second lien sits behind it. It has its own note, its own disclosures and its own payment. Lendmire is the broker. Wholesale lenders review the file, make the decision and fund the loans.
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify. The second-lien options carry no income limit beyond USDA’s own limit when the first lien is a USDA loan. The home must be your owner-occupied primary residence. Second homes and rentals do not qualify. You cannot stack the assistance with another assistance program.
Lendmire’s down payment assistance programs page lays out the full menu. This article focuses on the repayment terms and how they compare.
The Four Shapes Side by Side
The four shapes differ most on one question: does money leave your bank account every month? Here is the comparison. Figures reflect the wholesale programs Lendmire places files with, subject to program guidelines.
| Feature | Grant | Forgivable second | Repayable second | Refinance-cost second |
|---|---|---|---|---|
| Amount | 2% or 3.5% of price | 3.5% of lesser of price or value | 3.5% or 5% of lesser of price or value | 1% to 3.5% of lesser of balance or value |
| Lien on the home | None | Yes | Yes | Yes |
| Monthly payment | None | None | Yes | Yes |
| Interest | None | None | Yes | Yes |
| Ends when | Released at closing | Forgiven after 36 or 60 on-time payments | 30-year amortization, balloon in year 10 | Same terms as repayable second |
| Credit floor | 620 | 640 | 660 | 660 |
| First lien pairing | FHA only | FHA, USDA, HUD-184 | FHA, USDA, HUD-184 | FHA 203(b) refinance |
The fourth shape is for refinances. It covers closing costs on an FHA 203(b) refinance, with combined leverage up to 104%, and it uses the same repayment terms as the repayable second. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Why the Lien Matters (Even When Nothing Is Due)
Only a true grant leaves no lien. HUD’s own FHA help page says secondary financing is not a gift, even when there is no monthly repayment or the debt can be forgiven. That is why a forgivable second still goes through lien documents and program approval. Skip the idea that “forgivable” means “free.”
The practical result is simple. If the second is recorded against your home, it has to be paid off, forgiven on schedule or dealt with at a sale or refinance. A grant is the only shape where none of that applies.
How the First Mortgage and the Second Get Underwritten
Both loans are underwritten together as one file. The first lender looks at the first mortgage payment, the second mortgage payment, taxes, insurance, mortgage insurance and your other monthly debts. Then it decides whether you can reasonably carry all of it.
Here is the sequence on a typical file:
1. Pick the first lien. FHA is the base for all three purchase shapes. USDA and HUD-184 pair with the forgivable and repayable seconds only. The grant pairs with FHA only.
2. Run the first-lien numbers. FHA requires a minimum investment, which means high first-lien leverage. The upfront mortgage insurance premium is a percentage of the base loan, and it can be financed into the loan. Annual mortgage insurance depends on your loan size and leverage. FHA’s one-unit loan limits vary by county.
3. Add the second. The assistance is a percentage of the lesser of price or appraised value. On the repayable option, 5% covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items.
4. Check the credit tier. Representative score floors are 620 for the grant, 640 for the forgivable second and 660 for the repayable second. A co-borrower’s lower score can be blended in under the second-lien options, with minimums of 660 and 670, when the primary wage earner earns at least 60% of household income and holds the higher score. An automated underwriting approval is required.
5. Disclose and document. The second is a consumer loan with its own TRID disclosure. A repayable second also gets a separate balloon disclosure. Prepaid interest, recording, settlement and registration fees apply on the second. There are no lender fees on it.
6. Underwrite the combined payment. This is where the repayable second does its work, for better or worse. See the next section.
Manual underwriting is allowed on the forgivable option and not allowed on the repayable one. On the repayable second, the automated finding decides the file.
How a Repayable Second Hits Your Debt Ratios
A required monthly payment on the second counts in your debt-to-income ratio. A forgivable or grant structure adds no payment. That is the biggest mechanical difference between the shapes.
HUD’s older handbook language says the required monthly payments on the first and second lien, plus housing expense and recurring charges, cannot exceed the borrower’s reasonable ability to repay. That handbook is archived, so use it for the concept. The current rule lives in Handbook 4000.1. USDA’s loan origination FAQ says the same thing in system terms: the second goes in under “Other New Mortgage Loans on the Property” and its monthly payment under “Subordinate Lien P&I,” so a payment-bearing second goes into the ratios.
Say you are buying at a price near the middle of your county’s FHA limit. You take the 5% repayable option. Your first-lien payment stays about the same, and a new second payment lands on top. Your housing ratio and total debt ratio both rise. Your approval depends on whether your income, other debts and credit still clear the automated finding with that extra payment.
Compare a forgivable second at 3.5%. No payment, so no ratio impact. The tradeoff is the 640 credit floor, the 36 or 60 payment clock and the lien that stays on the home until forgiveness.
Lendmire’s piece How a Repayable Down Payment Assistance Second Affects Your DTI walks through the ratio effects in more detail.
Repayable Mechanics, Start to Finish
The repayable second follows a fixed life cycle. Know each stage before you sign.
Payments start right away. Unlike the forgivable shape, the second has a monthly payment from the start. It is interest-bearing. The rate is set by the program and is not covered here.
Amortization is 30 years. The payment is calculated as though you will pay it over three decades. That keeps the monthly amount lower than a shorter term would.
A balloon comes due in year 10. The unpaid balance is due at the end of year 10. Most buyers meet that by selling, refinancing or paying it off. Plan for it on day one, not in year nine.
There are no lender fees on the second. Only prepaid interest, recording, settlement and registration fees apply.
It must be paid off or dealt with on a refinance. USDA is explicit that assistance seconds cannot be rolled into a new guaranteed refinance. They must be paid off or subordinated. Expect the same discipline on any first-lien refinance.
Prepayment. HUD-184 rules give the borrower the right to prepay a junior lien in whole or part, and they bar a balloon before 10 years without HUD approval. Those conditions appear in 24 CFR 1005.439. Ask your lender how prepayment works on your specific second.
Here is the honest framing. A repayable second is a loan to cover your down payment. Borrowing a down payment raises your total debt and monthly payments. That is the cost of getting into the home sooner.
How the Grant and Forgivable Second Differ
The grant is the lightest structure. It is 2% or 3.5% of the price, applied toward the FHA minimum investment. Nothing to repay. No lien. No interest. No payment. It releases at closing.
The grant has its own test. Household income must be at or below 140% of area median income, unless you fall into a qualifying category. Those categories are first responders, educators, medical personnel, civil servants, military personnel, first-time buyers and buyers in underserved census tracts. An HUD-approved homebuyer education course is required. The grant is not offered in Washington. It pairs with FHA first liens only, in 1-4 units.
The forgivable second sits in the middle. It is 3.5% of the lesser of price or value, no interest, no payment, and it is forgiven after the first 36 or 60 on-time first-lien payments. A 90-day-or-greater delinquency breaks that. If you sell or refinance before the schedule finishes, the balance needs to be addressed. The lien term is 30 years.
Where the General Rule Breaks
The simple “payment or no payment” rule has exceptions. These are the ones that cause problems on files.
Forgivable is still a lien. It needs the right provider type, documentation and recording, just like any second.
Funding source decides the path. HUD’s page lists allowed secondary-financing sources, including government entities, nonprofits and family. It also says an FHLB set-aside grant is not secondary financing. A family second is its own category.
Government-provided assistance needs paper. FHA’s 2019 HUD mortgagee letter requires proof that a government entity provided the funds, plus a legal opinion on the entity’s authority. A law-firm summary describes it. Handbook rules may have changed since, so lenders check the current version.
USDA’s value test. USDA allows total liens above market value only where a down payment or closing cost soft second creates the overage. A repayable second does not obviously fit that exception, so the lender confirms how it applies. USDA describes its program as 100% financing with no down payment, so a second on a USDA file is a separate decision.
HUD-184 does not provide assistance. The Section 184 program guarantees loans made by approved lenders. It does not lend or provide down payment assistance itself. The junior lien comes from a Tribe, government or eligible nonprofit, or from the wholesale programs described here, and it must follow the junior-lien conditions in the federal rule.
Refinance-cost seconds are narrow. They apply to FHA 203(b) refinances only. Not a streamline. Not to refinance an existing assistance loan.
Repairs. On the second-lien options, minor non-structural repairs up to $5,000 can be escrowed at 150% of the estimate, with the completion timeline varying by file and lender.
Which Structure Fits Which Buyer?
This is a decision, not a ranking. Match the structure to your monthly cushion and how long you plan to stay.
- Thin savings, solid income, FHA first lien: the grant, if you meet the income test or a category. Nothing to repay, so nothing added to your ratios.
- Public-service worker or repeat buyer: the grant category list is wide. Check it first.
- Tight monthly budget, 640 or higher credit: the forgivable second keeps your payment flat. You commit to staying through the 36 or 60 payment clock.
- Strong income, low cash, 660 or higher credit: the repayable second at 5% covers closing costs too. The payment has to fit your ratios, and you need an exit plan before the year-10 balloon.
- USDA or HUD-184 first lien: the grant is off the table. Choose between forgivable and repayable.
- Plan to move in under three years: a forgivable second may not finish forgiving. Factor that in.
Assistance is for owner-occupied primary residences only.
Key Terms Defined
Second lien: a loan recorded behind your first mortgage on the same home.
Amortization: paying a loan down in regular installments over a set term, here 30 years.
Balloon payment: the unpaid balance due all at once, here in year 10 of the repayable second.
Forgivable second: a no-interest, no-payment second that is erased after a set number of on-time first-lien payments.
Debt-to-income ratio: your monthly debts divided by your monthly income, which lenders use to judge repayment ability.
Combined loan-to-value: the first and second liens together as a percentage of price or value.
What the File Needs
Gather these before you apply. Missing items are what hold files up.
- A completed application that discloses the source, amount and terms of the second
- Proof of income, assets and credit for the automated finding
- A homebuyer education certificate if you use the grant
- Documentation for any qualifying category on the grant, such as service or employment proof
- Co-borrower details if you want a blended credit score
- Repair estimates if you plan to use the escrow holdback
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
Do I have to repay down payment assistance?
It depends on the shape. A grant has nothing to repay. A forgivable second is erased after 36 or 60 on-time first-lien payments. A repayable second is a loan with monthly payments and a balloon in year 10.
Does a repayable second affect my approval?
Yes. Its monthly payment goes into your debt-to-income ratio alongside the first mortgage. A larger total payment can lower the first-mortgage amount you qualify for. A grant or forgivable second adds no payment.
What happens if I sell or refinance early?
The second has to be addressed. On a repayable second, the balance is paid off at sale or dealt with on a refinance. On a forgivable second, a sale before the schedule finishes leaves the balance to resolve. USDA requires assistance seconds to be paid off or subordinated on a refinance.
Can I pay a repayable second off early?
HUD-184 rules give borrowers the right to prepay a junior lien. Ask your lender how prepayment works on your specific second before closing. Paying it off avoids the year-10 balloon.
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. The grant has an income test unless a category applies, and being a first-time buyer is not required to meet it.
If You Are Buying a Primary Home
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. These options are for owner-occupied primary residences only. Lendmire is a broker, so lenders review each file and make the decision, subject to program guidelines and full underwriting.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving home buyers in 16 states. Down payment assistance programs are arranged with FHA, USDA and HUD-184 first liens through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. USDA Rural Development – Loan Origination FAQ
2. HUD FHA Connection – Secondary Financing Background
3. Cornell LII – 24 CFR 1005.439
4. Consumer Finance Monitor (ML 2019-06 summary)
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does a Down Payment Assistance Second Mortgage Count Against Your DTI? · How To Qualify For Down Payment Assistance As A Repeat Buyer · Is a Grant Forgiven Differently Than a Forgivable Second Mortgage?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.