Forgivable or repayable: the two kinds of down payment assistance

Down payment assistance comes in two kinds. Forgivable assistance needs no monthly payments and is cancelled once you meet the program’s conditions, such as living in the home for a set time or paying your first mortgage on time. Repayable assistance is paid back, either in monthly payments or in one sum when you sell, refinance, pay off the first mortgage or move out. Both are loans until they are forgiven or repaid, and with both, selling or refinancing early usually means paying back what is left.

Which one is better depends less on the program and more on your plans. Here is how I would think it through.

Forgivable assistance, in plain terms

A forgivable second loan sits behind your first mortgage and asks nothing of you each month. In exchange, you agree to conditions. The common ones are:

• Time in the home. You keep living in the home as your main home for the period the program sets.
• On-time payments. Some programs count a set number of on-time payments in a row on your first mortgage.
• No early sale or refinance. If you sell or refinance before the forgiveness date, what has not been forgiven is usually due.

Freddie Mac’s homebuyer guide to assistance (opens in a new tab) describes the same range: second loans at low or no interest with payments put off and sometimes forgiven, and amounts that do not have to be paid back if you own and live in the home for a set time.

When you meet the conditions, the second loan is cancelled. In some programs this happens on its own; in others you have to ask for it, so keep your payment records and your closing papers.

Repayable assistance, in plain terms

Repayable assistance comes in two shapes:

• Paid back monthly. The assistance is a second loan with its own monthly payment, on top of your first mortgage payment, until it is paid off.
• Paid back later. There is no monthly payment, and nothing is forgiven. The whole amount is due when you sell, refinance, pay off the first mortgage or stop living in the home.

A repayable second with monthly payments adds to what you pay each month, and that payment counts when the lender looks at your debts against your income. A second that is due later does not add a monthly payment, but the full amount is still owed at the end.

What happens if you sell or refinance early

This is the part buyers most often miss. With almost every program, what you still owe on the assistance is repaid from the sale or the new loan. If you plan to refinance in a few years, ask the program two questions before you sign: will the assistance have to be paid off at that point, and will the program ever agree to stay in second place behind a new first mortgage? The answers differ from program to program.

How to compare the two

Put your plans next to the terms:

• How long will you stay? If you expect to live in the home well past the forgiveness date, forgivable assistance can be worth a great deal. If you may move sooner, it may never be forgiven.
• What can you afford each month? A repayable second with monthly payments has to fit your budget alongside the first mortgage, taxes and insurance.
• Will you refinance? Early refinancing usually means repaying the assistance.
• What does the program allow? Some programs offer both kinds, with different amounts and rules for each. A loan officer can lay them side by side.
• What do the official forms say? The CFPB suggests comparing the official Loan Estimates (opens in a new tab) for any program you consider. Because the assistance is a loan, it has its own.

What does not change with either kind

• You still need a first mortgage that fits your credit, income and debts.
• The home must be your main home.
• The assistance is recorded as a lien on the home until it is forgiven or repaid.
• Funding and terms can change, so the program is confirmed again before closing.

A simple way to put it: forgivable assistance rewards staying put, and repayable assistance trades a cost now or later for fewer conditions. Neither is free money, and neither is a trap if you read the terms.

Frequently asked questions

Is forgivable assistance always the better choice?

No. It is a good fit when you expect to stay in the home past the forgiveness date. If you may sell or refinance sooner, compare it with the repayable option on what you would actually owe at that point.

Does forgivable assistance charge interest?

Many forgivable seconds charge no interest and need no payments while you meet the conditions. Check the note for your program; your loan officer explains its terms before you sign.

Can I choose which kind I get?

Sometimes. Some programs offer a forgivable option and a repayable one, each with its own rules. Others offer only one kind.

Is forgiven assistance taxable?

Tax treatment can depend on the program and your situation. Ask a tax professional before you rely on it either way.

Where can I see the programs you work with?

Our down payment assistance page lists each program’s main rules, including whether it is forgivable, repayable or both, and the estimator there checks which ones may fit you.