Not all down payment assistance is free money. Here’s how grants, forgivable seconds, deferred seconds and repayable seconds differ, what triggers repayment, and how to compare the real cost.
“Down payment assistance” covers very different things. A true grant doesn’t have to be repaid. A forgivable second mortgage is a loan that goes away only if you meet its conditions. A deferred second has no monthly payment, but you owe it later. A repayable second has a monthly payment like any other loan. Before you compare programs, figure out which of these you’re actually being offered, because a financed second is debt.
This guide explains the structures using Fannie Mae’s and Freddie Mac’s rules for assistance, with Utah Housing’s published programs as real examples. Sources were checked November 7, 2026. Each program’s own documents control its terms.
The four main structures
Grant: money that isn’t expected to be repaid. Fannie Mae’s Selling Guide requires grant documentation to include language saying repayment isn’t expected. A grant can still come with conditions (who qualifies, how it’s used, occupancy), so read the award letter.
Forgivable second: a loan secured by the home that’s forgiven over time or at the end of a period if you meet the terms. Until then it’s a lien. Sell, refinance or move out early, and some or all of it may come due, depending on the program.
Deferred second: no monthly payment, but the balance (and any interest) is due at a trigger, such as sale, refinance, payoff of the first mortgage, or maturity.
Repayable (amortizing) second: a regular monthly payment over a set term, at a set rate. It counts in your debt-to-income ratio like any other payment.
Fannie Mae’s rules for Community Seconds list exactly these kinds of options: fully amortizing payments, interest-only payments, payments deferred for a period, payments deferred for the whole term until payoff or sale, and forgiving all or part of the debt over time. The provider picks the structure.
Tax credits aren’t cash assistance
A Mortgage Credit Certificate (MCC) is a federal tax credit tied to your mortgage interest, not money at closing. Freddie Mac’s Home Possible fact sheet says lenders can count an MCC as qualifying income if the Guide’s requirements are met. It can help you qualify or improve cash flow over time, but it doesn’t pay your down payment. Whether an MCC is offered depends on the issuing agency.
Real examples from Utah Housing
Repayable: UHC’s Traditional DPA is a 30-year fixed second with a monthly payment. UHC says its rate is 1% higher than the first mortgage, not above 8%, and not below the UHC first mortgage rate. See UHC DPA and loan programs.
Deferred: UHC’s Deferred DPA is a 30-year second at 3.5% deferred simple interest with no monthly payment. Principal and deferred interest are due at maturity, sale or refinance.
0% loan with a sale or refinance repayment formula: UHC’s new-construction First-time Homebuyer Assistance Program is a 0% interest, no monthly payment loan. On sale or refinance, you repay the lesser of the assistance or 50% of home equity as defined in the program FAQ. It’s not a grant.
Grant: UHC’s Utah Homebuyer Veteran Grant is described as up to $2,500 that doesn’t require repayment, for eligible first-time Utah homebuyers who are service members or recently separated Veterans. See UHC grants and assistance.
What the agencies allow
If your first mortgage is conventional, the assistance second has to fit Fannie Mae’s or Freddie Mac’s rules:
Fannie Mae Community Seconds: the provider must be an eligible entity, such as a government agency, a housing finance agency, a 501(c)(3) nonprofit, a Federal Home Loan Bank or an employer. The second must be fixed-rate, no more than 2% above the first mortgage’s initial rate. Combined loan-to-value can reach 105%. If repayment is required, it can’t come due before the earlier of 15 years or the first mortgage’s maturity. Fannie Mae doesn’t buy the second, only the first mortgage paired with it.
Freddie Mac Affordable Seconds: generally provided by an agency, credit union or CDFI under an established program. It can’t be a HELOC, can’t have a balloon due before the first mortgage, and can’t carry a rate more than 2% above the first. Freddie Mac says an Affordable Second may be forgivable or repayable. If payments start before the 61st payment on the first mortgage, they count in your ratios.
FHA, VA and USDA loans have their own rules for secondary financing. Your lender checks the specific program against those rules.
How to compare the real cost
Monthly payment: does the second add a payment now, later, or never?
Rate and fees: what’s the second’s rate, and does using the program change the first mortgage’s rate or fees? Compare the total package, not just the assistance amount.
Repayment triggers: sale, refinance, payoff, moving out, maturity, or default?
Forgiveness conditions: how long, what you must do, and what happens if you sell early?
Effect on refinancing: will the provider subordinate, or does the second have to be paid off to refinance?
Effect on selling: how much has to come out of your sale proceeds?
Combined loan-to-value: borrowing nearly 100% or more of the home’s value leaves little equity if prices dip or you need to sell soon.
Hypothetical example (illustration only)
Take $15,000 of assistance in three forms. These are invented numbers, not any program’s current terms:
Amortizing at 7.5% for 30 years: about $104.88 a month, about $37,758 total if kept the full term.
Deferred at 3.5% simple interest: no payment, but about $17,625 owed after 5 years ($15,000 + $2,625).
Forgivable after a stated period: no payment and nothing owed if you meet every condition, but repayment can apply if you sell or refinance before then, depending on the documents.
The lowest monthly payment isn’t always the lowest total cost. That depends on how long you keep the home and the loan.
Paperwork and questions to ask
Get the note, deed of trust, and any program disclosure or award letter, and read the repayment and forgiveness sections.
Ask: Is this a grant or a loan? Is it recorded against the home?
Ask: What’s owed if I sell or refinance in year 2, 5 or 10?
Ask: Are there income limits, price limits, first-time buyer rules, education or occupancy requirements?
Ask: Is funding available now, and how long can it be reserved?
Ask: How does my payment, rate and cash to close compare with and without the assistance?
To compare real offers side by side, use How to Compare Down Payment Assistance Programs. For Utah’s statewide option, see Utah Housing Loans and Down Payment Assistance.
FAQ
Is down payment assistance free money?
Sometimes, but usually not. Many programs are second mortgages that are repaid monthly, repaid later, or forgiven only under conditions.
Does a deferred second affect my debt-to-income ratio?
It depends on when payments start. Fannie Mae and Freddie Mac each have rules that can exclude payments deferred long enough. Your lender applies the rule for your loan.
Can I combine assistance programs?
Sometimes. Each program decides, and the first mortgage’s combined loan-to-value limits still apply. For example, UHC’s FAQ says its new-construction assistance can be combined with its DPA second but not with its Veteran or Law Enforcement grants.
Do I need to be a first-time buyer?
It depends on the program. Some require it and many don’t. Check each program’s own definition.
Next step
If you’re looking at an assistance offer and want help figuring out what it really costs, contact me. Please don’t send loan documents or your Social Security number through the contact form or by email. Related reading: How Much Money Do You Need to Buy a House? and Seller Credits Explained.
Sources
Sources checked November 7, 2026. Jimmy Hobson, NMLS #1514540, UMortgage, powered by NEXA Lending (NMLS #1660690). This article is general education, not tax or legal advice, a loan approval or a commitment to lend. Program terms and funding change. Read each program’s documents before you rely on them.
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