Many down payment assistance programs deliver their help as a second lien instead of a grant. Two features show up again and again in those notes: deferral and forgiveness. They often appear together, and they are often described together on the program flyer, but they work separately. A lien can be deferred and never forgiven, due in full on sale. A lien can be forgiven in pieces over time and still be a recorded lien, with an unforgiven balance, until the last piece is released.
Deferral is about payments. A deferred second requires no monthly payment while the loan is outstanding. The full balance, or whatever the note says, becomes due on a trigger event. Common triggers include:
The note also says whether the balance accrues interest. Many agency seconds carry a zero rate, so the amount owed stays at the original balance. Some accrue interest that is added to the balance and paid at the trigger event. Some programs take a share of appreciation instead of interest. Each of those produces a different payoff years from now.
Forgiveness is about the balance. A forgivable second is reduced or eliminated if the buyer meets the conditions, usually continued occupancy for a stated period. The schedule varies by program:
Until a portion is forgiven, it is still owed if a trigger event happens. When the full balance is forgiven, the lienholder should record a release of lien. A forgiven second that was never released still shows on a title search, and getting that release recorded can hold up a later sale or refinance.
The first-lien investor has to accept the second's terms. The underwriter reads the note and program documents and checks for features that could make the second ineligible:
Fannie Mae's Community Seconds rules, FHA's rules for secondary financing, and the other agencies' guides each address these features. A housing agency being the lender does not by itself make the second eligible. The terms still have to pass.
The combined loan-to-value includes the full balance of the second until it is actually forgiven and released. On a purchase, that is the original amount.
Most forgiveness and deferral terms depend on the home staying the buyer's principal residence. The program documents usually define that. Moving out and renting the house, even while still owning it, often counts as a trigger event. So can adding someone to title or transferring the house into another name. Some programs check occupancy once a year with a letter or a form the owner signs and returns. Missing that certification can create a problem even when the owner still lives there.
A life change, such as a job transfer, a military move, a divorce, or a death in the family, does not automatically pause the clock. Some programs have hardship provisions, and some do not. If something changes, contacting the lienholder before moving out or listing the house gives the owner the actual numbers and options.
At the purchase closing, the second appears on the Closing Disclosure as a loan amount credited toward the buyer's costs, and the buyer signs the second note and deed of trust along with the first. The second has its own disclosures. The title company records it behind the first lien. The buyer should leave closing with copies of every second-lien document, because those papers will be needed at any future sale or refinance.
If the owner sells or refinances before the forgiveness period ends, the title company or new lender requests a payoff statement from the lienholder. That statement shows the amount due on the closing date, after any forgiveness that has already occurred, plus any accrued interest or shared appreciation the note provides for.
The payoff figure comes from the lienholder, not from the original flyer or a mental calculation. It can include amounts the owner did not expect, such as accrued interest or a recapture calculation tied to the sale proceeds. Some programs limit what they collect if the sale does not produce enough to pay them in full. The note says how.
For a refinance, many agencies will subordinate instead of requiring payoff, within their written policy. Others require payoff. Knowing which before applying keeps the refinance from stalling.
Forgiveness of debt can produce a tax form in some situations. Whether forgiven assistance is taxable for a particular buyer is a question for a tax preparer, and this library does not give that answer. A buyer who knows the question exists can ask the program what it issues and talk to a tax professional before treating the money as free.
A program forgives its second in equal parts over several years and states that any unforgiven portion is due if the owner moves out or sells. The owner takes a job in another city in the third year and sells the house.
At closing on the sale, the title company's payoff request returns the unforgiven balance. Because part of the balance was forgiven on the first two anniversaries, the amount due is smaller than the original second, but it is not zero. The owner had budgeted as if the whole second had disappeared once no payments were ever required. The sale still closes, but the net proceeds are lower than planned. The note's forgiveness schedule, on the first page, would have shown the number.
These questions are worth answering from the documents, before closing:
Keep a copy of the note, the deed of trust, and the program agreement with the closing documents. No monthly statement may arrive to remind you the lien exists, and the lienholder's contact information may be hard to find years later.
No monthly payment and no debt are different things. A deferred second is a debt with its payment postponed.
A forgivable second also gets confused with a grant. A grant, under most programs, is not secured by a lien. A forgivable second is a recorded lien that can go away under its own conditions.
Agency, automated findings, state program and lender layers are separate. A program can approve its second while the first-lien investor still has to accept the terms.
Fictional example: two Fort Worth buyers each receive assistance as a second lien. The first note has no payments, no interest and is forgiven in full after a stated number of years of occupancy. The second has no payments and no interest but is due in full on sale or refinance and is never forgiven. Both buyers sell in year four. The first owes the unforgiven balance its note describes; the second owes the original amount. Both read the payoff from the lienholder's statement, not the flyer.
For the Texas statewide programs, see TSAHC down payment assistance and TDHCA My First Texas Home. For an overview, see down payment assistance.
If you have an assistance offer and want the note's terms read next to the first mortgage before you commit, send me the program documents and we will go through them together. Book a call, or start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026