Nothing Is Forgiven for Five Years
Program and regulatory figures verified September 26, 2026. Details change; confirm your scenario with us.
This is the page we would want a member of our own family to read before signing. The assistance is worth having. The schedule is not what you have been told.
What the manual actually says
Both MHDC operations manuals, First Place and Next Step, revised 3/11/2026, carry the identical sentence:
The second loan will be forgiven if the borrower stays in the home and maintains the original loan for ten (10) years. After year five, the second mortgage will begin diminishing by 1/60 every month until year 10 when it will be completely forgiven.
Two clauses, and the second one is the one that matters. Forgiveness starts after year five. Not at closing, not at year one, not gradually from the beginning.
The shape of it
| When you leave | Months of forgiveness earned | Share of the 4% forgiven | Share you repay |
|---|---|---|---|
| Year 1 | 0 | 0% | 100% |
| Year 3 | 0 | 0% | 100% |
| Year 5 | 0 | 0% | 100% |
| Year 6 | 12 | 20% | 80% |
| Year 7.5 | 30 | 50% | 50% |
| Year 9 | 48 | 80% | 20% |
| Year 10 | 60 | 100% | Nothing |
A straight-line reading of "forgiven over 10 years" would put year five at 50% forgiven. The real figure is zero. That is a large gap on a real number, and it falls entirely on people who move early. Put your own purchase price in.
Who this actually catches
Most buyers will never meet the cliff. You buy, you stay, the ten years pass, and the lien is released. The people it catches are specific and they are not unusual:
- Anyone who expects a job move inside five years. Missouri has a lot of military and a lot of corporate relocation.
- Buyers of a deliberate starter home who plan to trade up in three or four years.
- Anyone likely to refinance early. Refinancing counts. MHDC lists sale and refinance together.
- Households whose plans could change, a growing family, an ageing parent, a relationship.
If you are in one of those groups, the assistance may still be the right call. What changes is that you should size the decision knowing the number is 100% and not 40%.
The refinance trap specifically
This one catches people who did everything right. You buy with assistance, rates move, and three years later a refinance looks obviously correct on the first mortgage alone. It is not obviously correct once the full 4% comes due at the same time.
We are not saying do not refinance. We are saying run it with the second loan in the arithmetic, which most quotes will not do for you because most people quoting do not know about the cliff.
Why this happens
MHDC is not hiding anything. The sentence is in both manuals and MHDC's FAQ states outright that these are not grant funds and the DPA is a second loan. The distortion happens downstream, in the summaries: "forgivable" becomes "forgiven", "over ten years" becomes "a bit each year", and the cliff disappears.
MHDC down payment assistance is a forgivable second loan, not a grant. Read that as good news with a condition attached, which is what it is.
How the neighbouring states compare
| State | Structure | Leave at year 4 |
|---|---|---|
| Missouri | Nothing for 5 years, then 1/60 a month to year 10 | Repay 100% |
| Ohio | Seven-year second, repayable in its entirety until the 7th anniversary | Repay 100% |
| Michigan | Never forgiven; deferred until payoff, sale, refinance or end of owner-occupancy | Repay 100% |
Worth noticing that all three leave a year-four mover repaying everything. Missouri's is the most generous of the three if you stay, because it is the only one that actually reaches zero on a schedule rather than on a single date or not at all.
One more thing on the way out
Separate from the second loan, MHDC's programs are funded by tax-exempt mortgage revenue bonds, and a federal recapture tax may apply when a borrower disposes of the residence by sale, exchange or gift. Lenders give you a Notice of Potential Recapture Tax at closing.
Whether it would actually cost you anything depends on your income at the time, how long you held the home and your gain, and that is a question for your tax preparer rather than for us. We flag it because people meet the phrase at closing and nobody explains it.
The two programs · the eligibility test · talk it through with us.
Frequently asked questions
When is MHDC down payment assistance forgiven?
Fully, only at ten years. MHDC's manuals state that after year five the second mortgage begins diminishing by 1/60 every month until year 10 when it is completely forgiven. Nothing is forgiven during the first five years, so the schedule is a five-year flat period followed by a sixty-month burn-down, not a straight line across ten years. MHDC down payment assistance is a forgivable second loan, not a grant.
What happens if I sell my Missouri home after four years?
You repay the entire 4%. Forgiveness does not begin until after year five, so at year four no part of the assistance has been earned off. MHDC states that a borrower who sells or refinances during the ten-year period covered by the second note will be responsible for repaying all or a portion of the DPA. At year four, that is all of it.
Does refinancing trigger repayment of MHDC assistance?
Yes. MHDC lists sale and refinance together as events that make the borrower responsible for repaying all or a portion of the assistance during the ten-year period. That catches borrowers who refinance early for a better rate, because the full outstanding balance can come due at the same time. It does not make refinancing wrong, but the second loan belongs in the arithmetic.
How much MHDC assistance is forgiven at year seven?
Around 40%. Forgiveness begins after year five at 1/60 of the balance per month, so two years of burn-down is 24 months, or 24/60 of the total. Half is reached at roughly year seven and a half. The remainder is repayable if you sell or refinance at that point.
Is Missouri's down payment assistance better or worse than Ohio's and Michigan's?
Different rather than simply better. All three leave a year-four mover repaying the full amount: Ohio's is a seven-year second repayable in its entirety until the seventh anniversary, and Michigan's is never forgiven at all, only deferred until payoff, sale, refinance or the end of owner-occupancy. Missouri's is the only one of the three that reaches zero on a monthly schedule, which makes it the most generous of the three for a borrower who stays.
Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal or tax advice. MHDC program terms, income limits and purchase price limits are set by the Missouri Housing Development Commission and change; figures here carry the date we verified them against MHDC's published documents. MHDC down payment assistance is a forgivable second loan, not a grant, and selling or refinancing inside ten years can require repaying all or part of it. Loans are subject to borrower and property qualification.