The answer to your question depends on the terms of your specific down payment grant. Some grants require you to repay the grant if you sell or vacate the property or refinance your mortgage within a specified period of time, usually five years.
Other down payment grants known as subordinated seconds, silent seconds or community seconds require you to repay the grant plus interest when you sell the home, move out of the property or refinance the mortgage, no matter how long you have owned the property.
The final type of down payment grant is effectively a gift that you are not required to repay at any point, even when you sell your home or refinance your mortgage. This type of grant is relatively uncommon and usually only covers a small portion of your down payment.
Review How Down Payment Assistance Programs Work
I recommend that you review your mortgage and grant documents to understand what happens if you do a cash out refinance, including if you are required to repay all or part of the grant. You should also determine if any repayment requirement depends on how long you have owned your property. If you have questions after reviewing your grant documents I recommend that you contact the grant provider to resolve the issue.
It is also important to review your mortgage documents to confirm that your loan does not have a prepayment penalty. Although only a relatively small number of mortgages have prepayment penalties this is a key consideration when you refinance as you do not want to pay any unnecessary fees.
Finally, we recommend that you contact multiple refinance lenders in the table below to find the best mortgage terms. Shopping lenders is the best way to save money on your refinance.
"Resources for Individuals." Grants. U.S. Department of Housing and Urban Development, 2020. Web.
"Understanding Cash-Out Refinances." My Home by Freddie Mac. Freddie Mac, 2019. Web.« Return to Q&A Home About the author