The Quick Read: Sometimes, but only on certain structures. Of the assistance shapes Lendmire arranges, the repayable second at 5% of price or value is built to cover closing costs and prepaids along with the down payment. The grant and the forgivable second are aimed at the down payment and the FHA minimum investment. Whether a program lets you spend its money on closing costs is the first thing to confirm, because it varies by program, by source, and by first mortgage.
Down Payment and Closing Costs Are Two Different Buckets
The down payment and closing costs are separate line items, and a program can cover one, the other, or both. The down payment is your equity in the house. Closing costs are the fees to get the loan done: lender and third-party charges, prepaid interest, and the first deposits into escrow.
FHA draws the line clearly. HUD defines the minimum required investment as at least 3.5% of the adjusted value, and it defines total required investment as that down payment plus the transaction costs the borrower pays. So a buyer can satisfy the 3.5% and still owe cash at the table.
That gap is where files get surprised. Buyers save for the down payment, find a program, and then learn the program’s money was never meant for fees. Ask early: does this assistance fund the minimum investment only, or does it also reach closing costs and prepaids?
Assistance of this kind is for an owner-occupied primary residence only, not a rental or second home. Everything below assumes you will live in the home.
Which Assistance Shape Covers What?
Four shapes exist across the down payment assistance programs Lendmire places files with through wholesale lenders. Their reach into closing costs differs a lot, so the table sorts them by what each is built to do.
| Shape | Size | Repay? | Closing-cost reach |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | Aimed at the FHA minimum investment |
| Forgivable second | 3.5% of lesser of price or value | Forgiven after 36 or 60 on-time payments | Down payment focus |
| Repayable second | 3.5% or 5% of lesser of price or value | Yes, a real loan | At 5%, includes closing costs and prepaids |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms as repayable | Closing costs of an FHA refinance |
The pattern is simple. The only purchase option with closing costs written into its structure is the repayable second at 5%. That is 3.5% for the minimum investment plus 1.5% toward closing costs and prepaid items. At 3.5% it is down payment only.
The grant is the cleanest money. It is released at closing, with no lien, no payment and no interest. But its purpose is the FHA minimum required investment, so it is not a closing-cost tool by design.
The Repayable Second Is the One Built for Closing Costs
The 5% repayable second is a real loan. It carries interest, a monthly payment, a 30-year amortization and a balloon due in year 10. The second has no lender fees of its own, only prepaid interest, recording, settlement and registration fees. It gets its own disclosure and a separate balloon disclosure.
Read that as a trade. You bring less cash to closing, and you take on a second payment and a balloon you need a plan for. Credit floor is 660 (670 blended), and manual underwriting is not allowed. This second pairs with FHA, USDA and HUD-184 first liens, and high-balance first liens are allowed.
There is also a closing-cost variant on an FHA 203(b) first lien only. It covers the down payment, closing costs, prepaids and costs paid outside closing on the same terms. If the closing-cost gap is your real problem, this is the structure to put on the table first.
Because the second is a loan, its payment counts in your qualifying ratios. Buyers overlook that. The assistance lowers cash to close but raises the monthly obligation, and the lender underwrites both.
Why Grants and Forgivable Seconds Rarely Stretch Further
The grant and the forgivable second both pay toward the down payment, and neither promises closing-cost coverage.
The grant gives 2% or 3.5% of price, credit floor 620. It pairs with FHA first liens only and is not offered in Washington. A homebuyer education course is required. You pay for it up front and the cost is credited back at closing.
The forgivable second is 3.5% of the lesser of price or appraised value, with no interest and no payment. It is fully forgiven after 36 or 60 on-time first-lien payments, with no delinquency of 90 days or more. Credit floor is 640 (660 blended). It pairs with FHA, HUD-184 and USDA first liens.
Both leave you funding closing costs from your own savings, a seller credit, or an eligible gift. For many buyers that is fine. The assistance handles the large check and the rest is manageable.
Where Seller Credits and Gifts Fit
Seller credits are a different tool, and on FHA they work the opposite way. A seller, builder, agent or lender can contribute toward closing costs and prepaids, up to a cap set by HUD’s guidelines. Those contributions cannot be used for the borrower’s minimum investment.
So the two tools split the job. Assistance from an eligible source carries the minimum investment. A seller credit, where the market allows one, can take care of fees. Anything above the cap or above actual costs is treated as an inducement and reduces the property’s adjusted value dollar for dollar.
Gifts have rules too. A gift is cash with no expectation of repayment, and the lender documents the donor, the amount and the transfer. Be careful about layering. Nothing in the Lendmire network stacks with another assistance program, so a second program on top of the one you chose is off the table.
A “no closing cost” loan means the costs are covered by a lender credit, paid through a higher interest rate, or rolled into a bigger balance. Seller-paid costs are not free either, since you may have agreed to pay more for the home. Closing-cost help always has a cost somewhere. The question is where.
What Happens on USDA and HUD-184 Files
The first mortgage changes the rules. FHA is the most common pairing, but the forgivable and repayable seconds also sit under USDA and HUD-184.
On a USDA guaranteed loan, USDA’s handbook chapter on closing lets eligible closing costs be included in the loan up to 100% of appraised value. It also lets the upfront guarantee fee be financed or paid with personal funds, seller concessions or eligible gift assistance. That is a built-in closing-cost option that has nothing to do with a down payment program. The document is a markup version, so confirm current language before relying on it.
On HUD-184, HUD’s Section 184 borrower page states a 2.25% down payment on loans over $50,000 and tells borrowers to have additional funds for closing costs. It also points them to their tribe or state housing finance agency for assistance. The Section 184 loan lowers the required down payment. It does not supply the money. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
One USDA rule catches people. Loan funds and seller-paid concessions cannot be disbursed to the applicant. Closing-cost help pays the bills at settlement. It does not put cash in your hands.
A Buyer Scenario, in Percentages
Picture a renter buying a first home with thin savings. Say the buyer qualifies for an FHA first lien at 96.5% leverage, so the 3.5% minimum investment is the first hurdle. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
With the grant at 3.5%, the minimum investment is handled and nothing is repaid. Closing costs still come from savings, a seller credit or an eligible gift, because the grant is aimed at the minimum investment, not the fees.
With the repayable second at 5%, the same buyer covers the 3.5% minimum plus the 1.5% toward closing costs and prepaids. Cash to close shrinks more. But the buyer now carries a second payment and a year-10 balloon, and a first lien that stands at a higher combined balance.
Now a repeat buyer moving up. Nothing here requires a first-time buyer. A repeat buyer can use the forgivable second at 3.5% with no income cap, since the second-lien options carry no income limit beyond USDA’s own on a USDA first lien. Closing costs come from sale proceeds or savings.
The right choice depends on what you are short of. If it is the big down payment check, the grant or forgivable second fits. If it is total cash to close, the repayable second at 5% is the one that reaches fees.
Questions to Ask Before You Apply
A short list gets you the real answer from any lender or program administrator:
- Does the assistance fund only the minimum investment, or also closing costs and prepaids?
- Is it one combined amount or separate pools?
- Is it a grant, a forgivable second, or a repayable second?
- If it is a loan, what is the payment, and when is the balloon due?
- Does the second lien fit within the combined loan-to-value allowed on my first mortgage?
- Does the program require me to bring my own money?
- Does it work with the first mortgage I am considering?
- What does the Closing Disclosure show for the assistance?
That last question matters at settlement. The assistance appears as a credit or a payoff, and you can check it against the Closing Disclosure, which walks through origination charges, prepaids, initial escrow and total closing costs.
What Goes Wrong on These Files
Four things come up repeatedly.
Assuming the program covers fees. The buyer sees “assistance” and plans around it covering everything. The grant and forgivable second do not promise that.
Ignoring the second payment. A repayable second raises the monthly obligation and the qualifying ratios. A forgivable one adds a lien and a recapture trigger if the first lien goes 90 days late before it is forgiven.
Forgetting the program’s own rules. The grant needs homebuyer education and an eligibility test: income at or below 140% of area median, or a qualifying category such as first responder, educator, medical worker, civil servant, military, first-time buyer, or a property in an underserved census tract. A repeat buyer in a qualifying profession can still use it.
Trying to stack. No option combines with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options.
Also expect the lender to verify source documents. Seller credits are written into the sales contract and the Closing Disclosure. Gifts need a letter and a paper trail. Second liens need a note and deed of trust.
Key Terms Defined
Minimum required investment: The part of the price you must put in yourself, 3.5% on an FHA loan.
Total required investment: The down payment plus the closing costs you pay.
Prepaids: Costs paid in advance at closing, like prepaid interest and the first escrow deposits.
Combined loan-to-value: The first mortgage plus any second lien, divided by the home’s adjusted value.
Forgivable second: A second lien with no interest or payment that is wiped out after enough on-time first-lien payments.
Balloon: A lump-sum payment due at the end of a set period, in year 10 on the repayable second.
Interested-party contribution: Money a seller, builder or agent puts toward your costs, capped at 6% of price on FHA.
Frequently Asked Questions
Can down payment assistance pay for prepaids and escrow deposits too?
Only when the structure includes them. The repayable second at 5% of price or value covers closing costs and prepaid items on top of the minimum investment. The grant and forgivable second are aimed at the down payment, so prepaids come from other funds. Confirm this in writing before you rely on it.
Do I have to be a first-time buyer to get closing-cost help?
No. None of the options require it, and repeat and move-up buyers qualify. The three-year no-ownership rule is only one of the categories that satisfies the grant’s eligibility test. The home must be your owner-occupied primary residence.
Is the closing-cost portion repaid?
On the repayable second, yes. It is a loan with a payment, a 30-year amortization and a balloon due in year 10. On the grant, nothing is repaid. On the forgivable second, the lien is forgiven after 36 or 60 on-time first-lien payments.
Can I combine assistance with a seller credit?
Often yes on FHA, because they do different jobs. Seller credits can cover closing costs and prepaids up to 6% of the sales price but cannot fund the minimum investment. The assistance covers the minimum investment. Both must be documented on the contract and Closing Disclosure.
Does a lower down payment mean lower total cost?
Not necessarily. Reducing cash to close with a repayable second adds a payment and a balloon. A grant avoids that, and the forgivable second avoids it if you stay current. Compare total cost, not just cash at the table, and consider speaking with an HUD-certified housing counselor.
If you are buying a primary home and want to see whether a down payment assistance option fits your file, Lendmire can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage. Lendmire is a mortgage broker licensed for consumer lending in 16 states, arranging these through wholesale lenders, subject to program guidelines and full underwriting.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps home buyers in 16 states pair an FHA, USDA or HUD-184 first lien with a down payment assistance option arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Investors who want the broader program framework can review how DSCR loans work.
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References
1. HUD FHA Resource Center – Minimum down payment
2. USDA RD Loan Origination FAQ
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can Banks and Nonprofits Offer Down Payment Assistance? · Does Down Payment Assistance Have to Be Repaid When You Sell? · Can You Use Down Payment Assistance on a Duplex?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.