What’s the Difference Between a Grant and a Forgivable Loan Program?

If you're looking into down payment assistance programs in East Texas or the Dallas–Fort Worth area, you've probably come across two common terms: grants and forgivable loans. While both can help reduce your out-of-pocket costs when buying a home, they aren’t exactly the same.

Bethany Ashby of easttexaslending.com/home explains that understanding the difference is key when comparing programs and planning your home financing.

What Is a Grant?

A grant is financial assistance that does not have to be repaid, as long as you meet the program’s eligibility requirements. It’s essentially free money to help cover your down payment or closing costs.

Common Features:

• Available through city, state, or nonprofit programs

• Often limited to first-time or income-qualified buyers

• May have residency or property requirements

• No repayment is required after closing

Grants are ideal for buyers who want help without future financial obligations tied to their mortgage. They’re also a great fit for those planning to stay in the home long-term.

What Is a Forgivable Loan?

A forgivable loan works more like a silent second mortgage. The loan is recorded but does not require monthly payments. It is gradually forgiven over a set period of time — often 3, 5, or 10 years — as long as you continue to meet the program’s terms.

Key Characteristics:

• No interest or payments while you live in the home

• Fully forgiven after meeting the time requirement

• Must repay if you sell, refinance, or move before forgiveness period ends

• Still considered assistance, but with some long-term conditions

Bethany says these loans are very common in Texas, especially with programs like TSAHC and city-level assistance in places like Tyler and Dallas.

Which Is Better?

There’s no one-size-fits-all answer. Grants offer immediate, unconditional help, which is great for buyers who qualify. Forgivable loans, on the other hand, often provide larger assistance amounts and are easier to qualify for based on the home price or income level.

Bethany helps buyers compare the options based on their budget, timeline, and long-term plans. For example, someone planning to move again within a few years might prefer a grant, while someone planning to stay long-term could benefit more from a larger forgivable loan.

Can You Combine the Two?

In some cases, yes. Certain assistance programs can be layered together, such as a local city grant plus a forgivable loan from a statewide program. However, the combined amount must still fit within the lender’s and program’s guidelines.

Bethany works with buyers to structure assistance packages that comply with both mortgage rules and the assistance program requirements.

Final Thoughts

Grants and forgivable loans both offer powerful tools for reducing upfront homebuying costs — but they come with different rules and expectations. Understanding the terms before you commit helps you avoid surprises and make the most of your options.

If you're unsure which program fits your goals, Bethany Ashby at easttexaslending.com/home can walk you through the choices and help you apply for the assistance that works best for you.

Sources:
TSAHC.org, TDHCA.state.tx.us, City of Tyler, HUD.gov, NAR.realtor