Refinance With Down Payment Assistance in Arizona 2026: What Happens to Your Second Lien

This is one of the most common calls we get from Phoenix homeowners who bought in the last few years. Rates dipped, somebody ran the numbers on a refinance, and then the loan officer went quiet once the title report showed a second lien from a down payment assistance program. Here is what actually happens.

Why Arizona DPA programs will not subordinate

Subordination is when a second lienholder signs a recorded agreement to stay behind your new first mortgage. A HELOC lender will usually do it. Arizona's down payment assistance issuers will not.

HOME Plus is administered by the Arizona Industrial Development Authority, and the program's own guidance is that it does not subordinate its lien to accommodate a refinance. Home in Five, run through the Maricopa County and Phoenix industrial development authorities, is blunter still. Its second loans are not eligible for subordination under any circumstances (Home in Five DPA guidelines, June 10, 2026).

That is a policy decision, not a negotiation. These programs are funded by bond proceeds and the lien is the security. There is no appeal, no exception letter, and no lender who can call in a favor. If you are refinancing, the second gets paid.

Which means the real question is not whether you can refinance. It is whether the payoff still leaves the math working. That is where most of these conversations actually land, and it is the same break even question we walked through in our guide to calculating your refinance break even point in Arizona.

HOME Plus and Home in Five, side by side

The two programs behave very differently on a refinance, and homeowners routinely mix them up because both were sold to them as "down payment help."

If you are not sure which one you have, the recorded deed of trust will say. You can look it up yourself through the Maricopa County Recorder by name or parcel number, and it takes about ten minutes. Our overview of Arizona down payment assistance programs covers how each one is structured going in.

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The 60 month forgiveness clock

This is the part that decides most HOME Plus refinances, and almost nobody brings it up first.

A HOME Plus second is not forgiven a little at a time. Per the Arizona IDA program guide, the principal is forgiven after the 60 month anniversary of the original loan date, and AzIDA says the lien must be repaid if you sell or refinance within the first 60 months. Take a $15,000 assistance amount. Refinance at month 24 and the full $15,000 is still owed. Wait until after month 60 and the number is zero, and the lien releases. Current terms for each Arizona program are in our Arizona down payment assistance guide.

So run the comparison honestly. If a refinance saves you $180 a month and you are at month 42, you are paying back the full $15,000 that would have been forgiven 18 months later to capture $180 a month. That is about an 83 month payback on the forgiveness alone, before you count a dollar of closing costs. Sometimes that still makes sense, usually when you are also dropping mortgage insurance or consolidating something expensive. Often it does not, and the right answer is to wait for the clock.

Home in Five depends on which option you have. The 3 and 7 year options are forgiven a slice each month, so the amount due shrinks while you wait. The 10 year option has no forgiveness and carries 6 percent interest, and the 30 year option stays deferred until maturity, so waiting does not erase either one. Check the recorded second before you decide.

Why the payoff is not a cash out refinance

Good news that saves people real money: paying off a down payment assistance second does not automatically turn your refinance into a cash out.

Conventional guidelines let a limited cash out refinance, what most people call a rate and term, pay off a subordinate lien that was used in whole to acquire the property. A DPA second is purchase money by definition. It funded the down payment on that exact house. So the payoff rolls into a rate and term transaction rather than a cash out one, and that matters because cash out pricing carries loan level adjustments that a rate and term does not.

Where people get burned is asking for a little extra on top. Take even a small amount of cash back and the whole loan reprices as a cash out, which can cost more in rate than the cash was worth. If you want money out, decide that on purpose, not by accident.

The payoff does raise your new loan amount, which raises your loan to value, which can affect pricing and mortgage insurance. Worth modeling before you commit. Our loan programs page lays out which products fit, and if your original loan was FHA, our FHA lending page covers the options there.

How to actually do it

Five steps, in this order.

1. Pull the recorded second. Confirm the program, the original amount, and the original loan date. AzIDA measures forgiveness from the 60 month anniversary of the original date of the loan.
2. Request a written payoff or subordination demand from the program servicer. Expect one to three weeks. Ask for it before you lock, not after.
3. Check for a release that was never recorded. If you are past month 60 on HOME Plus, the lien should be gone. Sometimes the release exists and nobody recorded it, which looks identical to an unpaid lien on a title report. That is a phone call, not a payoff.
4. Model the payoff into the new loan amount and look at the loan to value that results, including any mortgage insurance change.
5. Lock with room. A 30 day lock on a file with a DPA payoff demand outstanding is optimistic. Build in the buffer.

If you also carry a home equity line, that one usually can be subordinated, and the mechanics are different enough that we covered them separately in how HELOC subordination works on an Arizona refinance. And if you bought recently and are wondering whether you have waited long enough at all, our guide to seasoning rules after buying a house in Arizona covers the timing.

Arizona lien and release mechanics live in A.R.S. Title 33, and the CFPB's Owning a Home materials are a decent plain English primer on what a refinance actually changes. When you want your real numbers, our team at Pillar Mortgage Group will shop the file across every lender we work with. If you are refinancing because you are eyeing a move up, browse current listings at Arizona Luxury Property Search first, because selling changes this math entirely.

Honest caveat: for a lot of HOME Plus borrowers sitting in year three or four, the right answer is do nothing. Giving up the full assistance amount before month 60 to shave a quarter point is a bad trade, and any broker who runs that scenario without mentioning the clock is not doing the math you are paying them for. We would rather tell you to call us back in eighteen months.

Frequently asked questions

Can I refinance if I used down payment assistance in Arizona?

Yes, but the assistance second lien must be paid off at closing. Neither HOME Plus nor Home in Five will subordinate to a new first mortgage, so the payoff comes out of your new loan proceeds and increases your loan amount.

Do I have to pay back HOME Plus down payment assistance if I refinance?

Yes, if you refinance within the first 60 months. HOME Plus forgives the full amount only after the 60 month anniversary of the original loan, so refinancing at month 24 on a $15,000 assistance amount means the full $15,000 is due. After month 60 the lien is fully forgiven and releases.

Will Home in Five subordinate its second loan?

No. The Home in Five guidelines dated June 10, 2026 say its second loans are not eligible for subordination under any circumstances. Any balance still owed is due on sale, transfer, or refinance; on the 10 year option that means principal plus accrued interest at 6 percent.

Does paying off a down payment assistance lien make it a cash out refinance?

No. Conventional guidelines allow a limited cash out, or rate and term, refinance to pay off a subordinate lien that was used entirely to acquire the property, and a down payment assistance second qualifies. Taking additional cash back on top is what converts the loan to cash out pricing.

How long does a down payment assistance payoff take?

Plan on one to three weeks to receive a written payoff demand from the program servicer. Request it before you lock your rate. A 30 day lock on a file with an outstanding DPA payoff demand is where extension fees come from.