The Quick Read: No. On FHA, USDA and HUD-184 loans, the seller or builder cannot supply your down payment, and a “gift” from either one isn’t a gift in the lender’s eyes. What they can do is pay part of your closing costs, within a cap. That lowers your cash to close, but a separate, independent source still has to cover the down payment itself.
Why Can’t the Seller or Builder Fund the Down Payment?
Because they profit from the sale. Government-backed loans treat anyone with a financial stake in the deal as an “interested party,” and interested parties can’t supply the buyer’s own required investment.
The rule has a history. Before 2008, some nonprofits passed down payment money to buyers that the seller had quietly funded. Congress shut that down with the Housing and Economic Recovery Act. HUD’s Single Family office describes the law as prohibiting assistance from the seller and from any other person or entity that financially benefits from the transaction.
Two points follow from that wording:
- Indirect money counts as seller money. A “grant” the builder reimburses is not a legitimate source, even if a third party hands you the check.
- A gift letter doesn’t cure a bad source. Lenders trace where the money came from. The letter only proves nobody expects repayment.
USDA says the same in its own words: gift funds may not come from any source with an interest in the sale, and it names the seller, builder and real estate agent. On HUD-184 loans, gifts from entities with an interest in the sale are treated as inducements to purchase and get subtracted from the sales price.
What Seller and Builder Money Can Actually Do
It can pay eligible closing costs. That’s the whole lane.
| Money from the seller or builder | Can it fund the down payment? | What it can cover |
|---|---|---|
| Cash “gift” | No | Nothing |
| Closing-cost credit | No | Eligible closing costs, prepaids |
| Price reduction | Indirectly | Lowers the price you finance |
| Nonprofit pass-through | No | Barred as seller money |
On FHA, HUD’s guidance on interested party contributions says they can’t be used for the borrower’s minimum required investment. It also says amounts above actual costs, or above the cap, reduce the purchase price dollar for dollar when HUD computes the property’s adjusted value. USDA limits these contributions to eligible loan purposes, and excess seller-paid amounts can go toward principal at closing or back to the seller. They can’t come to you as cash.
Think of it this way. A seller credit changes what you owe at the closing table. It doesn’t change the 3.5% FHA minimum investment you bring from a permitted source.
Where Does Legitimate Down Payment Money Come From?
From you, from family or an employer, or from a government-style program with no financial stake in your purchase. Anyone with a stake in the sale is out: the seller, builder, developer and real estate agent, plus any party they reimburse.
For a primary-residence buyer, down payment assistance programs are the usual answer when savings run thin. Across the wholesale programs Lendmire places files with, assistance comes in four shapes, and none of them is funded by the seller or builder:
- Grant-style assistance. Set at 2% or 3.5% of the purchase price, with nothing to repay. It’s released at closing, with no lien, payment or interest. It pairs with FHA first liens, needs a 620 credit floor, and requires a homebuyer education course. It isn’t offered in Washington.
- Forgivable second lien. Set at 3.5% of the lesser of price or appraised value, with no interest and no monthly payment. It’s forgiven after 36 or 60 on-time first-lien payments, and the credit floor is 640.
- Repayable second lien. Set at 3.5% or 5%, and it is a real loan. It has a monthly payment, a 30-year amortization and a balloon due in year 10. At 5%, it also helps with closing costs. The credit floor is 660.
- Refinance-cost second lien. Set at 1% to 3.5% of the balance on an FHA refinance, not a down payment tool.
All of this runs subject to program guidelines and full underwriting, and none of it is a commitment to lend.
Do You Have to Be a First-Time Buyer?
No. Repeat and move-up buyers qualify for every option. The grant does carry an income test: household income at or below 140% of area median income. But that test falls away if you fit a qualifying category, such as first responder, educator, medical worker, civil servant, military, first-time buyer, or a home in an underserved census tract. The two second-lien options have no income limit beyond USDA’s own on a USDA first lien.
One firm boundary: this is for an owner-occupied primary residence. Not a second home. Not a rental.
What Happens With a Builder’s Incentive Package?
Read the fine print. Builder marketing often says “up to” a certain amount toward your costs, and that language almost always means closing-cost credit, not down payment.
Builders are named interested parties on FHA, and USDA names the builder as a barred gift source. So a builder’s incentive can be a capped closing-cost credit, a price reduction, or a rate buydown paid within the cap. It can’t be your minimum investment. USDA’s Chapter 6 handbook limits contributions to eligible purposes and notes the 6% limit doesn’t apply to single-close construction loans.
Here’s where it gets practical. Picture a buyer eyeing a new-construction home whose builder advertises a sum “toward your purchase.” Ask the lender, in writing, which line items that money can touch. Then ask where the 3.5% minimum investment will come from. If the answer is “the builder,” the file has a problem.
Red flags worth catching early:
- Advertised “down payment help” that only works as a closing credit.
- A grant or assistance source that the builder or seller reimburses.
- A price that jumped to absorb the credit. (The appraisal still has to support the final price.)
- A preferred-lender requirement tied to the incentive.
Does a Family Member Selling to You Change the Answer?
Possibly, but confirm it with the lender before you plan around it. A gift of equity, where a relative sells below market value, is treated as a reduction in the purchase price rather than cash. USDA requires it to be applied as a price reduction with no cash back, and the appraiser must be told. Don’t assume it works as an exception to the seller rule on your specific loan.
Government-provided assistance is a separate, allowed category. A government entity or public program can supply the minimum investment as a gift or second lien, with documentation. Just ask how any assistance is repaid. Some government-entity programs have been found to recover the assistance through higher mortgage payments and fees, which is a cost hiding in plain sight.
What Should You Do, Situation by Situation?
- The seller offers cash toward your purchase. Redirect it to closing costs, in writing, within the cap. Source your down payment elsewhere.
- The builder offers an incentive. Ask for the line-item breakdown. Treat it as closing help or a price cut.
- A relative is the seller. Ask the lender how a gift of equity is handled on your loan type.
- You’re short on savings. Compare the grant, forgivable and repayable structures against your credit score, income and occupancy plans.
- A program promises “free” money. Ask who funds it and whether anyone connected to the sale reimburses it.
Credits beyond the cap don’t disappear. They reduce the value the lender uses, which can shrink the maximum loan and raise the cash you need. Treat the cap as a ceiling, not a target.
Key Terms Defined
Interested party: Anyone with a financial stake in the sale, including the seller, builder, developer, real estate agents and sometimes lenders.
Minimum required investment: The 3.5% of price or value an FHA buyer must bring from a permitted source.
Interested party contribution: Seller or builder money toward your allowed closing costs, capped as a percentage of price.
Gift of equity: A below-market sale from a relative, treated as a price reduction rather than cash.
Second lien: A separate loan recorded behind your main mortgage, with its own disclosure.
Frequently Asked Questions
Can a seller gift me my down payment?
No. The seller has a financial interest in the sale, so FHA, USDA and HUD-184 all bar the seller as a source of your down payment. The seller can pay eligible closing costs within a cap. That frees up cash, but it doesn’t count as your required investment.
Can a builder’s incentive count as my down payment?
No. Builders are interested parties too. Their money can usually reduce the price, buy down costs or cover closing expenses, within limits. If an incentive sheet says “down payment help,” confirm in writing that it isn’t restricted to closing costs.
Can seller credits and down payment assistance be used together?
Yes, in the sense that they cover different things. Assistance from an independent source can cover your minimum investment, while a seller credit pays eligible closing costs. Assistance options themselves don’t stack with one another, and every file is underwritten individually.
Can I pocket leftover seller credit as cash?
No. Credits can only pay actual eligible costs. On USDA, excess amounts can’t be paid to you at closing. On FHA, amounts above actual costs or above the cap are treated as sale-price reductions.
Is my assistance repaid if it comes from a second lien?
It depends on the shape. A forgivable second is forgiven after 36 or 60 on-time first-lien payments. A repayable second is a loan with a monthly payment and a balloon in year 10. The grant has nothing to repay.
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. Call 828-256-2183 to talk it through.
Investors who want the broader program framework can review how DSCR loans work.
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.
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References
1. USDA guaranteed-loan handbook, Chapter 9
2. HUD Single Family tribal consultation deck
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Down Payment Assistance Can You Get? · Can a Gift From Parents Stack With Down Payment Assistance? · Does Down Payment Assistance Have to Be Paid Back?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.