The cost nobody mentions: the premium never comes off
Assistance puts your first mortgage at 96.5 percent of the price. On FHA, the annual mortgage insurance premium runs for the whole term of the loan above 90 percent loan-to-value, and stops after 11 years at or below it.1
So a borrower using assistance is, by construction, in the row where the premium never ends. A borrower who saved 10 percent is in the row where it stops. On a $350,000 purchase that is roughly $155 a month, and the difference between paying it for eleven years and paying it for thirty is the single largest number in this whole comparison — larger than the second lien, larger than the rate.
That is not an argument against assistance. It is an argument for knowing that the exit is a refinance out of FHA once you have equity, and for treating that as the plan rather than a happy accident.
The second lien, if it is repayable
A payment from month one, and a debt in your ratio on the day you apply — which can be the thing that costs you the house you wanted rather than the one you settled for. The forgivable version does not do this, which is why the choice between them is worth more attention than it usually gets.
The rate, and the temporary buydown
Assistance is not free to the lender providing it, and the cost of it lives somewhere — usually in the rate on the first mortgage. Expect the first to price a little above a plain FHA loan, and ask to see both so the difference is a number rather than a feeling.
Many of these programs also allow a 2/1 buydown: a temporary reduction of two percentage points in the first year and one in the second, funded up front. It genuinely helps a tight first two years. It is temporary, the payment steps up on schedule, and you should be underwritten on the full payment rather than the reduced one — ask to see the payment in year three before you agree to the one in year one.
Against saving for two more years: assistance gets you in now, at today's price, building equity instead of paying rent — and costs you a permanent mortgage insurance premium and possibly a second payment. Saving gets you a cheaper loan on a house that may cost more by then.
There is no general answer to that. There is a specific answer for your numbers, and it takes about twenty minutes to work out. We will run it honestly, including the version where the answer is to wait — we have no assistance quota to fill.
Three questions for whoever is offering it
- Is this a grant, a forgivable lien, or a repayable loan — and what is the monthly payment on it?
- What would my rate be on the same loan without assistance?
- What does my payment look like in year three, if there is a buydown?
Three answers, in writing, on a Loan Estimate. Anyone offering assistance can produce them.
Sources
These references support the factual explanations above. Where this page states a preference rather than a fact, it says so — those are our editorial judgement, not a claim that any one channel always costs less.
Next
Forgivable, deferred, or repayableTwo structures, two very different monthly payments, and the choice turns on one question about your life.FHA mortgage insuranceTwo premiums, not one — and whether the second one ever ends is settled on the day you close.Before you sign for assistance
A grant, a forgivable lien and a loan with a monthly payment are not the same thing, and the paperwork often does not say which one you have. Send us what you were quoted and we will tell you what is actually being handed to you.