Grants vs. Forgivable Loans vs. Deferred Seconds

Last reviewed: July 2026

Down payment assistance may reduce the amount of cash you need upfront. But the word assistance does not tell you whether the money disappears, becomes forgivable later or remains a debt attached to your home.

When Colorado buyers hear phrases such as down payment grant, forgivable assistance or zero-interest second mortgage, the options can sound interchangeable.

They are not.

The structure may affect your future equity, your ability to refinance and the amount you receive when you eventually sell. That does not make assistance a bad idea. It means the help you receive today should also fit your plans for tomorrow.

New to these terms? Start with our overview, Colorado Down Payment Assistance: 3 Types Every Hero Should Know. This guide picks up from there: named forgivable-loan programs, shared appreciation, refinance mechanics and dollar-by-dollar repayment scenarios.

The Three Main DPA Structures in Plain English

What Is a Down Payment Assistance Grant?

A true down payment assistance grant generally does not have to be repaid. It may help cover part of the down payment, closing costs or other approved expenses.

That sounds like the easiest option, and sometimes it is. But "no repayment" does not automatically mean "no cost." The first mortgage paired with a grant may have different pricing than a mortgage without assistance.

For example, CHFA's current down payment assistance information describes a grant of up to the lesser of 3% of the first mortgage or $25,000. CHFA states that the grant does not require repayment and that higher first-mortgage rates may apply when assistance is used. For the full breakdown of CHFA's grant and second mortgage options, see our guide: CHFA Colorado Down Payment Assistance Explained.

A simple $500,000 example

Suppose the first mortgage is $480,000. Three percent of that amount is $14,400.

If that amount were provided as a true grant, you would generally not repay the $14,400. You should still compare:

• the first-mortgage rate with the grant
• the rate without assistance
• the monthly-payment difference
• the total cost over the years you expect to keep the mortgage

The grant may still be the stronger option. The point is to compare the entire mortgage, not only the assistance amount.

What Is a Forgivable Loan?

A forgivable loan is not the same as a grant on closing day.

It begins as debt. The balance may later be reduced or released after you meet the program's requirements. Those conditions might involve living in the home, making consecutive on-time first-mortgage payments or waiting through a defined forgiveness period.

Forgiveness can happen in several ways:

• All at once: The full balance may be released after a defined period.
• Gradually: A portion may be forgiven each month or year.
• Conditionally: Forgiveness may depend on payment history, occupancy or other rules.

The early-sale question matters

Imagine receiving a $15,000 forgivable loan with a five-year occupancy requirement. If the program forgives 20% each year, the balance could decline by $3,000 annually.

If you sell after three years, $9,000 may have been forgiven while the remaining $6,000 may be due. That is only an illustration. Some programs use all-or-nothing forgiveness, which could leave the full balance due if you sell before the deadline.

Before relying on a forgivable loan, ask for the forgiveness schedule and repayment triggers in writing.

Are Forgivable Down Payment Loans Still Available?

Yes. Forgivable loans still exist, although the conditions vary considerably and some well-known programs have changed their structures.

Chenoa Fund: forgiveness tied to payment history

Chenoa Fund's current published FAQ describes a 3.5% FHA assistance option that may be forgiven after 36 consecutive on-time first-mortgage payments. A late payment resets that forgiveness period. Chenoa's published materials also describe a 5% option with a longer 120-payment forgiveness condition.

The crucial distinction is that the second mortgage remains real until the forgiveness requirements have been completed.

HUD Good Neighbor Next Door: forgiveness tied to occupancy

HUD Good Neighbor Next Door offers eligible teachers, law enforcement officers, firefighters and emergency medical technicians a 50% discount on certain HUD-owned homes in revitalization areas.

The discount is recorded as a silent second mortgage. HUD states that no interest or payments are required when the buyer fulfills the 36-month occupancy requirement. The program is valuable but highly specific: eligible occupation, eligible property and the full occupancy commitment must all line up.

What Is a Deferred Second Mortgage?

A deferred second mortgage is a real loan secured by the home. It sits behind the first mortgage, which is why it is called a "second."

Deferred usually means you do not make monthly payments right now. It does not mean the debt vanished.

Common repayment triggers

A deferred second may become due when you:

• sell the home
• refinance the first mortgage
• pay off the first mortgage
• transfer title
• stop using the home as your primary residence
• reach the end of the second mortgage term

Not every program uses every trigger. The current note, deed of trust and program documents control.

The 0% interest trap

A 0% deferred second mortgage can be useful because the balance may not grow. But 0% interest does not mean $0 owed.

If you receive $18,000 at 0% interest and later trigger repayment, you may still owe the original $18,000.

This distinction is especially important with MetroDPA. The current program describes its assistance as a 30-year, 0% second mortgage with no scheduled payments. It is a deferred loan structure, not the older three-year forgivable structure that still appears on outdated third-party pages.

Why Refinancing Can Change the Math

Many buyers assume they will refinance if mortgage rates fall. A deferred or unforgiven second mortgage can complicate that plan.

Some programs allow the second mortgage to remain behind the new first mortgage. This is called subordination. Other programs require the assistance balance to be repaid before the refinance can close.

That does not automatically prevent refinancing. The payoff might be covered from accumulated equity or included in the new loan when permitted. But it changes the calculation.

"If rates fall and I want to refinance in three years, what happens to this assistance?"

That question belongs in the conversation before closing, not three years afterward.

A proposed refinance may serve a separate financial goal, such as purchasing retirement service credit, while also triggering repayment of existing assistance. See how this could affect a Colorado teacher considering a PERA service-credit purchase.

How the Three Structures Compare on a $500,000 Purchase

Consider three hypothetical buyers. Each receives $15,000 in assistance. These simplified examples do not represent a specific program.

Buyer A: $15,000 grant

No repayment is generally required. The buyer compares the first-mortgage rate and total loan cost against an option without the grant.

Buyer B: $15,000 forgivable loan

The loan may be forgiven after five years. If the buyer completes every requirement, the balance may reach $0. If the buyer moves earlier, part or all of the balance may remain due.

Buyer C: $15,000 deferred second

No monthly payments are required. The buyer sells after seven years and repays the $15,000 from the sale proceeds. The assistance solved an upfront-cash problem, but the balance did not disappear.

None of these structures is automatically best. The right fit depends on the first-mortgage terms, repayment rules, how long you expect to stay, your likely refinance plans and other resources available in the transaction.

What About Shared Appreciation?

Shared appreciation is another assistance structure. It is different from a grant, a forgivable loan and a standard deferred second.

The program may provide assistance now and later receive the original balance plus a defined share of the home's increased value.

That may expand purchasing power, but it also changes how much appreciation the homeowner keeps. Buyers should ask:

• How is the appreciation share calculated?
• Is repayment based on sale price or appraised value?
• What happens if the home does not appreciate?
• What happens after a refinance, transfer or move?
• Is there a maximum repayment amount?

Shared-appreciation terms are program-specific. Review the current documents before treating the assistance as equivalent to a grant or fixed-balance second mortgage.

Not Every "Hero" Offer Is a Public Assistance Program

Public, nonprofit, municipal and employer-sponsored programs generally publish defined eligibility, funding and repayment rules.

Private companies using hero-themed marketing names operate through private referral, rebate or affiliated-professional business models. That is different from a state grant, a HUD program or a locally funded forgivable second mortgage.

A private rebate or credit may still have value, but buyers should ask:

• Who actually funds the advertised benefit?
• Must I use an affiliated lender, real estate agent or title company?
• Is the benefit a grant, a rebate, a lender credit or an agent commission rebate?
• Does accepting it limit my ability to compare professionals or loan terms?

The hero-themed label does not determine whether something is a public-service program. The legal and financial structure does.

For a deeper side-by-side look at how to evaluate these offers, see our full guide: Public Programs vs. Private Hero Home Buying Offers.

Seven Questions to Ask Before Accepting DPA

1. Is this a grant, forgivable loan, deferred loan or shared-appreciation obligation?
2. Is a second lien recorded against the property?
3. What exact events trigger repayment?
4. How does forgiveness work, and is it gradual or all at once?
5. What happens if I refinance?
6. Does using assistance change my first-mortgage rate or fees?
7. How much would I owe if I sold after two, five or ten years?

Ask for written program terms. A verbal summary can be useful, but the note, deed of trust, program matrix and closing documents determine the obligation. A HUD-approved housing counselor can review these documents with you at no cost before you sign anything.

How Colorado Buyers Can Compare the Options

Start by separating the assistance from the first mortgage.

Review:

• the amount provided upfront
• the first-mortgage rate and monthly payment
• any required borrower contribution
• monthly payments on the assistance, if any
• repayment or forgiveness triggers
• refinance restrictions
• occupancy requirements
• the estimated payoff after several possible holding periods

For more Colorado context, review Hero HomeReach's guides to CHFA, MetroDPA, public programs versus private hero offers and the broader Colorado assistance program map.

Frequently Asked Questions

Does all down payment assistance have to be repaid?

No. Grants generally do not require repayment. Forgivable loans may be forgiven if you complete the rules. Deferred second mortgages usually remain repayable after specified trigger events.

Is a forgivable loan the same as a grant?

No. A grant generally begins without a repayment obligation. A forgivable loan begins as debt and may become partially or fully forgiven later.

Are forgivable down payment loans still available?

Yes. Current examples include certain Chenoa Fund options and HUD Good Neighbor Next Door. The conditions differ, so verify the payment, occupancy, timing and repayment rules before closing.

Does deferred mean forgiven?

No. Deferred normally means payments are postponed. The balance can still become due later.

Can I refinance with a deferred second mortgage?

Possibly. Some programs permit subordination while others require full repayment. Verify the current rules before closing and again before refinancing.

Can seller concessions be used with down payment assistance?

They may be allowed depending on the loan type, purchase contract, lender and assistance program. Seller concessions and DPA are separate tools with separate limits.

Can I combine more than one assistance program?

Sometimes, but not automatically. Lien position, first-mortgage rules and each program's restrictions determine what can be combined.

Which type of assistance is best?

There is no universal winner. A grant may offer the simplest repayment structure. A forgivable loan may reward a buyer who completes the conditions. A deferred second may provide more upfront help without adding a current monthly payment. The first-mortgage pricing and your expected timeline matter too.

Before You Choose a Program, Map the Repayment Rules

A program that helps today should still make sense if you sell, move or refinance later.

Hero HomeReach can help you organize those questions and prepare for a more productive conversation with a participating lender. Hero HomeReach does not determine program eligibility or provide mortgage approval. Final eligibility and loan terms depend on the full financial file and current program requirements.