The short answer
CHFA grant vs second mortgage is the choice every CHFA buyer makes. Both pair with a CHFA first mortgage, and a buyer picks one, not both. The grant is smaller and never repaid. The second is larger, with no monthly payment, and is repaid at sale, refinance, payoff or move-out. CHFA notes higher rates apply.
Below: how CHFA's programs fit together, the six steps, a side-by-side table, the repayment triggers and the words to use with buyers.
How CHFA's programs fit together
CHFA, the Colorado Housing and Finance Authority, works through participating lenders. The buyer gets a CHFA first mortgage, and the down payment help rides on top of it.
- The first mortgage. CHFA has programs for government-backed loans like FHA, VA and USDA (see CHFA SmartStep) and for conventional loans (see CHFA Preferred). Also see CHFA FirstStep.
- The help. A down payment assistance grant or a down payment assistance second mortgage. Each is the lesser of a percentage of the first mortgage or a dollar cap, set by CHFA.
- The limits. Income and purchase price limits apply. See CHFA income and purchase price limits.
- The buyer's own money and education. CHFA requires homebuyer education and has required a minimum investment from the buyer. Check current rules at chfainfo.com.
Step by step: CHFA grant vs second mortgage
- Ask how long they plan to stay. This is the main question. The second has to be paid back when they sell or refinance. The grant never does. A buyer who might move or refinance in a few years should see what repayment would cost them.
- Ask about refinancing. If rates drop and they refinance, the second comes due at that point. CHFA's own materials have said it won't subordinate the second to a refinance. Confirm with the lender.
- Ask how much cash they need. The second is usually the bigger number. A buyer who is short at closing may need it.
- Have the lender price both. Same house, same buyer, two quotes: grant version and second mortgage version. Compare the rate, the monthly payment and the cash to close.
- Look at the total cost. Grant: any rate difference over the years they keep the loan. Second: the dollar amount they repay later, with no interest added.
- Put it in writing. Have the buyer read the lender's disclosure for whichever option they pick. Repayment terms belong in the loan papers, not your memory.
Grant vs second mortgage side by side
| CHFA DPA grant | CHFA DPA second mortgage | |
|---|---|---|
| Size | Smaller percentage of the first mortgage, with a dollar cap | Larger percentage, with a dollar cap |
| Repaid? | No | Yes, in full, when a trigger hits |
| Monthly payment on the help | None | None |
| Interest on the help | None | None (CHFA calls it a silent second) |
| Effect on the first mortgage rate | CHFA notes higher rates apply | CHFA notes higher rates apply |
| Biggest risk | Paying a higher rate for many years | A surprise payoff at sale or refinance |
| Can buyer take both? | No, one or the other | No, one or the other |
Current percentages and caps are on CHFA's down payment assistance page. Check them every time.
A worked example (illustration only)
A buyer's first mortgage is $300,000.
| CHFA grant | CHFA second mortgage | |
|---|---|---|
| Example size (assumed 3% grant, 4% second) | $9,000 | $12,000 |
| Owed back if they sell in year four | $0 | $12,000 from sale proceeds |
| Owed back if they refinance in year two | $0 | $12,000 at the refinance |
| Owed back if they stay 30 years, no refinance | $0 | $12,000 when the first mortgage is paid off |
Illustration only. A lender sets the real terms. The percentages above are assumptions for the example, not current program terms. Each option affects the first mortgage rate, and the full loan carries mortgage insurance, taxes, homeowners insurance and closing costs. The annual percentage rate (APR) would differ from any note rate. This is not an offer of credit. Program rules change. Check current rules at chfainfo.com.
When is the CHFA second mortgage repaid?
Use the plain trigger list. The second comes due when any of these happen:
- They sell the home.
- They refinance the first mortgage.
- They pay off the first mortgage.
- The home stops being their main home (for example, they move out and rent it).
The grant has none of those triggers.
How to explain it to your client
"CHFA gives you two choices. The first is a grant. You never pay it back. The second is a bigger amount with no interest and no payment, but you pay back the same dollars when you sell, refinance or move out. Either way your rate may be a little higher than a loan without help. If you need more cash now and plan to stay, the second can make sense. If you might move or refinance in a few years, the grant may be better. Your lender will show you both, and you pick."
Watch-outs
- Never say "free money." The grant can mean a higher rate. The second gets repaid.
- Renting it out triggers repayment. If the buyer moves out and keeps the home as a rental, the second can come due.
- Refinancing isn't free. A rate-drop refinance means the second has to be paid off.
- Two seconds don't stack. CHFA's second and another program's second usually can't both sit on the same home. Ask the lender. See metroDPA.
- Check the numbers each time. Percentages and caps change. Use chfainfo.com.
- Don't run the math yourself. Get the lender's two quotes in writing.
Further reading
- CHFA Down Payment Assistance in Colorado on kennarealestate.com
- $1,000 Cash to Close on kennarealestate.com
Keep going
- All financing pages: financing and DPA training
- Next: CHFA SmartStep explained, CHFA Preferred explained, CHFA income and purchase price limits, down payment assistance basics
- Let buyers test payments on your site with the Mortgage Calculator Widget, a slider calculator you paste into WordPress.
- Free download: The PadLeaders Playbook, seven systems written as a checklist you can use this week.
This is training for real estate agents. It isn't legal, tax or lending advice. A licensed loan officer sets loan terms. Check with your managing broker.
Questions
What is the difference between the CHFA grant and the second mortgage?
The grant is smaller and never repaid. The second is larger, has no interest or monthly payment, and is repaid at sale, refinance, payoff or move-out.
Can a buyer take both the grant and the second?
No. CHFA lets a buyer pick one or the other, paired with a CHFA first mortgage.
Do you have to pay back CHFA down payment assistance?
The grant, no. The second mortgage, yes, when a trigger like a sale or refinance happens.
Does the CHFA second mortgage charge interest?
CHFA has described it as a zero-percent silent second with no monthly payment. Confirm current terms with a participating lender.
What if the home loses value?
The second is still owed in full when it comes due. The lender explains how that works at sale.
Can the help pay closing costs?
Yes. It can go toward down payment, closing costs and prepaids, under CHFA's current rules.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.