Repayable vs. Deferred Second Mortgages
When assistance comes as a second mortgage, the single most important question is whether it has a monthly payment. A repayable second raises your monthly obligation and lowers how much home you qualify for. A deferred second does not.
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What to know
- Has an interest rate and a monthly payment, usually amortized over 10 to 30 years.
- The payment counts against your debt-to-income ratio, reducing your buying power.
- Often available with looser eligibility because the agency gets its money back.
- You build equity in the assistance as you pay it down.
- No monthly payment. Nothing is due until you sell, refinance, or pay off the first mortgage.
- Does not reduce how much home you qualify for on the monthly side.
- Often carries 0% interest, and sometimes forgives entirely after a set period.
- The balance quietly reduces your proceeds when you sell.
- Deferred is almost always better for a stretched buyer because it does not touch your monthly qualification. Take a repayable second only when it is the only option or when the amount is small enough that the payment is trivial.
Ask RED: “Explain Repayable vs. Deferred Second Mortgages in plain English.”
Ask REDPrograms to look at first
Step Up
AHFA · Alabama
30-year fixed FHA/Conventional with a 4% down payment assistance second mortgage repaid over 10 years.
Program detailsAffordable Income Subsidy Grant
AHFA · Alabama
Non-repayable grant of 1% or 0.5% of the loan amount, layered on top of Step Up for borrowers under 80% AMI.
Program detailsMortgage Credit Certificate (MCC)
AHFA · Alabama
Annual federal tax credit worth up to $2,000 for the life of the loan, stackable with FHA/Conv.
Program detailsFirst-Time Home Buyer Program
AHFC · Alaska
Reduced-rate 30-year fixed with 1% off market rate for buyers under 115% AMI.
Program detailsClosing Cost Assistance Program (CCAP)
AHFC · Alaska
Up to 4% of the loan amount as a forgivable second toward down payment and closing costs.
Program detailsRural Owner-Occupied Loan Program
AHFC · Alaska
Below-market financing for homes in Alaska communities under 6,500 population — a lifeline in bush Alaska.
Program detailsFrequently asked questions
What is down payment assistance in Repayable vs. Deferred Second Mortgages?
Down payment assistance is money from a state, county, city, or nonprofit that helps cover your down payment and closing costs when you buy in Repayable vs. Deferred Second Mortgages. Some of it is a grant you never repay, some is a loan that is forgiven after you live in the home for a set number of years, and some is a quiet second mortgage that you settle when you sell or refinance.
Who qualifies for down payment assistance?
Most programs look at four things: your household income compared to the area median, your credit score, whether you have owned a home in the last three years, and the purchase price of the home. You also have to live in the home as your primary residence, and most programs require a short homebuyer education course.
Do I have to pay down payment assistance back?
It depends on the structure. A true grant is never repaid. A forgivable loan is erased over a set number of years as long as you stay in the home. A deferred second mortgage is repaid when you sell, refinance, or pay off the first mortgage. A repayable second has a monthly payment from day one.
Can down payment assistance be used with an FHA loan?
Yes. FHA is the most common first mortgage under an assistance program because FHA specifically allows the down payment to come from a government agency. Assistance also pairs with conventional HomeReady and Home Possible loans, and with USDA and VA at some agencies.
What are the income limits for down payment assistance?
Most programs cap household income somewhere between 80% and 150% of the area median income, and the cap usually rises with household size. Because the limit is set by county, the same salary can qualify in one county and not the next one over.
What credit score do I need for down payment assistance?
Most programs start at 620, some FHA-based programs go to 640, and a handful of manually underwritten paths accept 580. A higher score usually unlocks a larger assistance tier and a better interest rate.
Do I have to be a first-time buyer?
Usually, but 'first-time buyer' almost always means you have not owned a home in the last three years — not that you have never owned one. Some programs waive it entirely for veterans, for buyers in targeted areas, or for certain professions.
Is down payment assistance forgivable?
Often, yes. Forgivable assistance is written as a second lien that shrinks to zero over a set period, commonly three to ten years of living in the home. If you sell or move out early, you repay a prorated share of what was not yet forgiven.
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Related resources
ReadinessIQ is a Homebuyer Readiness Platform, not the agency that funds these programs. We publish what the agencies publish, link to the official source, and tell you when a rule is likely to change. The agency and your lender make the final call on who qualifies.