Do You Have to Pay Back Down Payment Assistance When You Sell Your Home in Minnesota?
In most cases, yes.
Minnesota Housing down payment assistance, including the Monthly Payment Loan and the Deferred Payment Loan, is a second mortgage recorded against your home, and the balance gets paid off from your sale proceeds at closing.
Local programs like the Woodbury First-Time Homeownership loan and the Washington County CDA loan work the same way.
Grants, such as the $5,000 first-generation grant, never have to be repaid.
Forgivable loans are repaid only if you sell before the forgiveness period ends, and a separate federal recapture tax can apply if you sell a Start Up home within nine years.
By Darin Bjerknes | June 24, 2026
A Woodbury seller called me last spring, three days before closing, rattled.
Her title company had sent over the preliminary settlement statement, and there was a line she didn't recognize: a second mortgage payoff to Minnesota Housing for a little over $9,000.
She'd forgotten she ever had it.
Five years earlier, when she bought her first home off Radio Drive, her lender had used a Start Up loan with down payment assistance to cover most of her down payment and closing costs.
To her, it had felt like free money.
At closing, it became a lien that had to be paid before she could hand over clear title.
This happens more than you'd think in the east metro.
First-time buyers in Woodbury, Oakdale, Cottage Grove, and Maplewood lean on down payment assistance to get into a house, then sell three, five, or seven years later as move-up buyers without remembering exactly what they signed.
The assistance shows up again at the worst possible moment: when you're counting on your proceeds to fund the next purchase.
Here's the good news. None of this is a problem if you know about it early.
The trouble only starts when a payoff surprises you the week of closing and changes your net number.
Let me walk you through what you actually owe, what you don't, and how I handle it for sellers before we ever list.
Why Your Down Payment Assistance Comes Back at Closing
Most down payment assistance in Minnesota isn't a gift. It's a loan, and that loan is recorded as a second mortgage against your property.
When you sell, your title company runs a title search and finds every lien attached to the home: your first mortgage, the assistance second mortgage, any judgment liens, unpaid special assessments, and so on.
Each one has to be cleared before the buyer gets clean title.
The mechanics are the same as the solar-loan UCC-1 filings I've written about before, and they're why the Abstract or Torrens title search matters so much.
The title company orders a payoff statement from Minnesota Housing or the program servicer.
The exact dollar figure comes out of your proceeds at closing.
A Satisfaction of Mortgage gets recorded afterward to release the lien.
You don't write a separate check. It's deducted from what you walk away with, right alongside your first mortgage payoff, your agent commission, and the State Deed Tax.
So the real question isn't whether it gets handled. It's how much, and that depends entirely on which kind of assistance you took.
The Three Kinds of Assistance, and What Each Costs You
Repayable Second Mortgages: Paid Off in Full at Sale
This is the most common bucket in the east metro.
Minnesota Housing's main loans run through Start Up, for first-time buyers, and Step Up, for repeat buyers and refinancers, and both can pair with down payment assistance of up to $18,000.
There are two structures:
The Monthly Payment Loan is a second mortgage you repay monthly over 10 years at the same interest rate as your first mortgage.
The Deferred Payment Loan and Deferred Payment Plus carry zero interest and require no monthly payment, but the full balance comes due when you sell, transfer title, stop using the home as your primary residence, refinance your first mortgage outside of Step Up, or pay the first mortgage off.
Either way, when you sell, the outstanding balance is paid in full from your proceeds.
With a Deferred Payment Loan, that balance is essentially the original amount, because you've never paid it down.
With a Monthly Payment Loan, it's whatever principal is left after years of monthly payments.
Local programs follow the same logic.
The Woodbury First-Time Homeownership loan, run through the city's HRA, charges below-market interest with monthly interest-only payments and defers the principal until you sell, transfer title, pay off the first mortgage, or stop occupying the home.
The Washington County CDA partners with Minnesota Housing to deliver up to roughly $17,000 in assistance to local first-time buyers.
If you used one of these, expect a payoff line on your settlement statement.
Forgivable Loans: You Repay Only If You Sell Too Soon
Forgivable loans are different. They're built to disappear over time as long as you keep living in the home, so if you've held the property long enough, you may owe nothing.
The active program here is the First-Generation Homebuyers Community Down Payment Assistance Fund, which offers eligible first-generation buyers up to 10% of the purchase price, capped around $32,000, as a zero-interest loan forgiven over five years at 20% per year.
Minnesota Housing also ran a First-Generation Homebuyer Loan, a 20-year forgivable loan up to $35,000 with half forgiven at 10 years and the rest at 20, though that program's funds were exhausted in December 2024.
The catch is timing.
Sell before the forgiveness clock runs out and you repay the unforgiven portion.
Many programs prorate it: on a five-year, 20%-per-year schedule, selling after three years typically means repaying the remaining 40%.
Some programs are all-or-nothing, where selling in year nine of a 10-year term means repaying the full amount.
Read your specific note, or have me pull it and confirm with the servicer before we price your sale.
Grants: Nothing to Repay
True grants don't get recorded as repayable liens, and they don't come back at closing.
The Washington County CDA's first-generation homebuyer grant, for example, provides $5,000 that you simply don't pay back, and buyers in Oakdale and Woodbury may qualify for additional grant dollars.
If your assistance was a genuine grant, it won't show up as a payoff.
The confusion usually comes from sellers who assume their assistance was a grant when it was actually a deferred second mortgage. The paperwork tells the truth.
The Recapture Tax Most Sellers Have Never Heard Of
Here's the one that catches people off guard, and it has nothing to do with your second mortgage.
Minnesota Housing's Start Up loans are funded with mortgage revenue bonds, and federal law attaches a potential subsidy recapture tax to bond-funded loans.
It only applies if all three of these happen at once:
You sell within the first nine years of closing.
You realize a gain on the sale.
Your household income has risen above the program's limits by the time you sell.
Miss any one of those and you owe nothing.
The tax is capped at 50% of your gain, and the maximum is 6.25% of your original first mortgage amount.
As Minnesota Housing itself notes, most Start Up borrowers never pay a dime of recapture tax.
But east metro values have climbed, and incomes rise, so the gain-plus-income combination is more common now than it was a few years ago.
If you bought with a Start Up loan in 2019 or 2020 and you're selling now, this is worth a quick check with your tax advisor.
It connects directly to how we calculate your capital gains exposure on the sale.
What This Does to Your Net Proceeds
None of this changes your sale price. It changes your net, the number that actually funds your next move.
Picture a Woodbury seller closing this summer.
The home sells around the local median, which sat near $429,000 to $435,000 in spring 2026, with homes going to contract in about 43 days.
Off the top come the first mortgage payoff, roughly 5% to 6% in selling costs, the 0.33% State Deed Tax, and then the assistance payoff.
A $9,000 Deferred Payment Loan is $9,000 straight out of proceeds.
That can be the difference between a comfortable down payment on a Stillwater or Lake Elmo move-up and coming up short, especially when Lake Elmo's median is closer to $600,000 and Stillwater's sits around $475,000.
This is why I map every lien before we set a list price.
I'd rather tell you in the listing appointment that you have an $11,000 second mortgage than have the title company tell you the week of closing.
For the full picture of where your money goes, my breakdown of what it costs to sell in Woodbury walks through every line.
How to Handle Down Payment Assistance When You Sell
Find your original closing packet. Look for any second mortgage, deferred loan, or assistance note from Minnesota Housing, your city HRA, or the Washington County CDA. The document names the program and the structure.
Identify the type. Repayable second mortgage, forgivable loan, or grant. That single distinction determines whether anything comes out of your proceeds.
Request a payoff or forgiveness status. Have your agent or title company order a payoff statement from the servicer, or confirm how much of a forgivable loan has been forgiven to date.
Check the nine-year recapture window. If you used a Start Up loan and you're selling within nine years with a gain, ask your tax advisor whether subsidy recapture applies.
Build it into your pricing. Fold every payoff into your net-proceeds estimate before you list, so your list price and your next-purchase budget are based on real numbers.
Frequently Asked Questions
Do I Have to Pay Back Minnesota Housing Down Payment Assistance When I Sell?
Almost always, yes.
The Monthly Payment Loan and Deferred Payment Loan are second mortgages, and the outstanding balance is paid from your proceeds at closing.
The only assistance you don't repay is a true grant, or a forgivable loan you've held past its forgiveness period.
How Much of My Down Payment Assistance Comes Out at Closing?
For a Deferred Payment Loan, essentially the full original amount, often up to $18,000, since you've made no payments.
For a Monthly Payment Loan, only the remaining principal after years of monthly payments.
Your title company gets the exact figure from a payoff statement.
What's the Difference Between a Forgivable Loan and a Deferred Loan?
A deferred loan is always repaid when you sell, you've just delayed payment until then.
A forgivable loan is erased over time if you stay in the home, so you may owe nothing, or only a prorated balance if you sell before the forgiveness period ends.
Will I Owe a Recapture Tax if I Sell My Start Up Home in the East Metro?
Only if you sell within nine years, realize a gain, and your income has risen above program limits, all at the same time.
Most sellers never trigger it, but with rising Woodbury and Lake Elmo values it's worth confirming with a tax advisor.
Can I Avoid Paying Back My Assistance by Refinancing Instead of Selling?
Refinancing your first mortgage normally triggers repayment too, unless you refinance through Minnesota Housing's Step Up program and get approval to subordinate the second mortgage.
Outside of that, the assistance is due when the first mortgage is refinanced or paid off.
Ready to Know Your Real Number?
Down payment assistance helped you buy. It doesn't have to surprise you when you sell.
The key is identifying every lien and payoff before you list, so your net proceeds and your next move are built on accurate figures.
Thinking about selling a home you bought with down payment assistance in Woodbury or the east metro? Let's pull your payoff numbers and map your net before you list.
Reach out at [email protected] or book a call at calendly.com/darintheminnesotan. No pressure, just a straightforward conversation about your goals and what the market looks like for you right now.
About Darin Bjerknes
Darin Bjerknes is a licensed REALTOR with Minnesōtan, Brokered by REAL, serving the Twin Cities east metro.
He works with move-up buyers and sellers across Woodbury, Afton, Stillwater, Cottage Grove, Lake Elmo, Oakdale, and surrounding Washington and Ramsey County communities.
Connect with Darin at darinbjerknes.com or book a call at calendly.com/darintheminnesotan.
Darin Bjerknes | Minnesōtan, Brokered by REAL | [email protected]
