What to Ask About Down Payment Assistance Repayment Before You Accept

Ask these questions before you sign the paperwork

Down payment assistance programs vary wildly in how they handle repayment. Some programs forgive the money entirely after you own the home for a set number of years. Others require you to repay every dollar, either immediately or when you sell. A few sit somewhere in between — they forgive part of it, or they defer repayment but charge interest. Before you accept any assistance, you need to know which category you're in, because the difference between forgiveness and repayment can be tens of thousands of dollars.

The lender or program administrator should give you a document that spells this out. It may be called a promissory note, a deed of trust, a second mortgage, or a grant agreement. Read it before closing, not after. If the document is unclear or you cannot find one, ask the questions below in writing and keep the answers.

Key Takeaways

• Some down payment assistance is a grant that you never repay; other programs require full repayment with interest, and many fall somewhere between.
• Forgiveness programs typically require you to stay in the home for a set period — often five to ten years — and you must repay the full amount if you sell or refinance before that time ends.
• Deferred repayment means you owe the money but do not pay it back until you sell the home, and it may accrue interest during that time.
• The repayment terms are usually written into a second mortgage or deed of trust, which is a legal claim against your home, and you should review this document before closing.
• If you refinance your mortgage, the assistance program's lien may need to be paid off from your refinance proceeds, which reduces the cash you walk away with.

Is this a grant or a loan?

A grant is money you do not repay. A loan is money you do repay. Some programs call themselves grants but require repayment under certain conditions — for example, if you sell the home within five years. Ask the program directly: "Do I have to repay this money, or is it forgiven?" If the answer is "it depends," ask what it depends on.

If it is a true grant with no repayment requirement, the program should state that clearly in writing. If there are conditions attached — such as "forgiven after ten years of ownership" — those conditions are the most important thing you need to understand before you close.

How long do I have to stay in the home to keep the assistance?

Many programs forgive the assistance after you have owned and lived in the home for a certain number of years. This period is called the affordability period or retention period, and it typically ranges from three to ten years, depending on the program.

If you sell the home, refinance your mortgage, or move out before this period ends, you usually have to repay the full amount of assistance you received. Some programs will forgive a portion of it based on how long you stayed; others require full repayment no matter when you leave. Ask: "If I sell the home in [three/five/seven] years, do I owe back the full amount of assistance, or is any of it forgiven?" Get the answer in writing.

What happens if I refinance my mortgage?

Refinancing is often treated the same way as selling — it can trigger full repayment of the assistance. This is because the assistance program typically holds a second mortgage or lien against your home, and that lien has to be paid off when you refinance. The payoff amount comes out of your refinance proceeds, which means less cash in your pocket.

Some programs allow you to refinance without triggering repayment, but this is less common. Ask: "If I refinance my mortgage, do I have to repay the assistance, or can the lien stay in place?" Also ask: "If the lien has to be paid off, will it come out of my refinance proceeds?" Understanding this now prevents a surprise at the refinance closing table.

Is there interest, and does it accrue while I own the home?

Some assistance programs charge interest on the amount you borrow. Others do not. If interest is charged, it may start accruing immediately, or it may only accrue if you defer repayment (meaning you do not pay it back until you sell). Ask: "Does this assistance have an interest rate? If so, what is it, and when does interest start accruing?"

A program with no interest is better than one with interest, all else equal. But a program with deferred interest — interest that only accrues if you do not repay on time — is different from one where interest accrues from day one. The difference can add up to thousands of dollars over time.

When do I have to repay, and how?

If repayment is required, ask when it is due. Some programs require repayment immediately after closing — meaning you get the assistance but have to pay it back right away, which defeats the purpose. Others defer repayment until you sell the home. Still others require repayment only if you sell within a certain window, and forgive it after that window closes.

Ask: "When is repayment due?" and "Can I repay in installments, or is it due in full?" If it is due when you sell, ask: "Will the program contact my title company at closing, or do I have to arrange repayment myself?" Programs that work directly with title companies are simpler; programs that require you to track down the payoff amount yourself are easier to forget about, which can cause problems later.

What if I cannot repay when it is due?

If you sell the home and the assistance is due, the payoff amount will come out of your sale proceeds before you receive your money. If the assistance is due but you have not sold — for example, if it was supposed to be repaid after five years and you are still in the home — ask what happens if you cannot pay. Some programs will work with you on a payment plan. Others may place a lien on your home or pursue collection.

This is an edge case, but it is worth asking about. The answer tells you how strict the program is and what your options are if circumstances change. Ask: "What happens if I cannot repay on the due date? Will you work out a payment plan, or will this go to collections?"

Frequently Asked Questions

Can I use down payment assistance from multiple programs at once?

Yes, many buyers layer assistance from different sources — for example, a state program plus a nonprofit plus a lender credit. However, each program will have its own repayment rules, and you will need to track all of them. Before you accept multiple programs, ask each one how their repayment terms interact with the others. Some programs will not work together, or one program's repayment requirement will trigger another's.

If the assistance is forgiven after five years, what counts as the five years?

Usually it is five years from the closing date, not five years from when you move in. But some programs count five years of continuous ownership, meaning if you sell and buy again, the clock resets. Ask: "Does the five-year period start on my closing date, and does it reset if I sell the home?" Get the exact language in writing.

What if I inherit the home or get divorced — does that trigger repayment?

This depends on the program. Some programs treat inheritance or divorce as a change of ownership and require repayment. Others do not. If either of these situations is possible for you, ask the program how they handle it. The answer may affect whether you accept the assistance.

Will the assistance lien show up on my credit report?

A second mortgage or lien against your home is a public record, but it typically does not appear on your credit report the way a personal loan does. However, if you fail to repay and the program pursues collection, that can damage your credit. Ask your lender whether the lien will affect your credit score or your ability to borrow money in the future.

Can I pay off the assistance early without penalty?

Some programs allow early repayment with no penalty. Others charge a prepayment fee. If you think you might want to repay early — for example, if you expect to refinance or sell — ask: "Can I repay this assistance early, and if so, is there a prepayment penalty?" The answer may influence whether you accept the program.