The Quick Read: Yes, but with conditions. Banks and nonprofits can fund assistance, and the first mortgage you choose decides which sources it will accept. FHA, USDA and HUD Section 184 loans do not supply the help themselves. Across the wholesale programs Lendmire arranges, the help comes as a grant with nothing to repay, a forgivable second loan, or a repayable second loan, always on an owner-occupied primary residence.
Who Actually Provides the Money?
Assistance never comes from the government-backed first mortgage. It comes from a separate source, and that source has to pass the first lender’s tests. The sources fall into three groups.
- Banks and lenders. Some run their own programs. Others pass along money from the Federal Home Loan Bank system, which sends grant funds only through member institutions, not straight to buyers.
- Nonprofits. Charitable groups can give funds, but the structure has to be a true gift or a legitimate loan.
- Government entities. State, local and tribal programs are acceptable sources, with extra paperwork.
In practice, you rarely shop for the bank or the nonprofit first. You shop for the first mortgage and the assistance structure that fits it, and the lender confirms the source is acceptable. Lendmire’s down payment assistance programs work this way. As a mortgage broker licensed for consumer lending in 16 states, Lendmire arranges FHA, USDA and HUD-184 first liens with assistance options through wholesale lenders, subject to program guidelines and full underwriting.
Does FHA, USDA or Section 184 Provide Assistance Itself?
No. FHA insures the loan, and that is all it does. Its minimum required investment is at least 3.5% of the property’s adjusted value, as defined in the HUD Handbook 4000.1 glossary. Assistance is how a buyer covers part of that minimum, and sometimes closing costs.
The Section 184 Indian Home Loan Guarantee Program works the same way. It guarantees loans made by approved lenders and does not directly lend or provide down payment assistance or grants. Tribes and other sources fill that gap.
The first-lien rules shape everything else. A buyer who picks an FHA loan, for instance, can use the grant option. The forgivable and repayable seconds pair with FHA, USDA and HUD-184.
How Do Nonprofits Fit In? (And Who Checks Them?)
Nonprofits can help, but nobody in government pre-approves them. A HUD Office of Inspector General audit states that HUD does not approve down payment assistance programs. The programs and the lenders using them must make sure the funds meet FHA requirements. The proof burden sits with the lender.
For you, that means the lender will ask where the money comes from and will want it documented. A charitable source is typically expected to be a genuine 501(c)(3). A governmental source has to show it is acting in a governmental capacity. Funds toward your minimum investment must come from acceptable sources and be verified.
A quick vetting list for any program that approaches you:
- Ask who funds it, and whether the seller or anyone who profits from the sale contributes.
- Ask whether the money is a gift, a grant or a loan, and what triggers repayment.
- Ask whether it works with your first mortgage type.
- Be wary of upfront fees or promises that sound too clean.
Why Seller-Funded “Nonprofit” Programs Disappeared
Some older nonprofit programs were really pass-throughs for the seller. Federal rulemaking records show HUD worried about charitable gifts when the seller or another party who benefits from the sale supplies the down payment, and that some charities got around the limits through a fund that provides the so-called gift. A federal statutory ban followed.
So a modern buyer should treat “the seller secretly funds it” as a dealbreaker, not a feature.
One more regulatory item is still moving. A federal agenda item, Reginfo Unified Agenda RIN 2502-AJ50, lists a pending rule on when governmental entities derive a prohibited financial benefit. It was at the proposed-rule stage when last listed, so check with your lender for the current status.
The Hidden Cost Trap
Free-sounding help can carry a price. The HUD OIG audit found FHA borrowers who were required to take a premium interest rate, and so repaid their assistance through higher mortgage payments and fees. If a program says the money is a gift, ask how it is funded. If the answer is a pricier first mortgage, the “grant” is a loan in disguise.
Lender-tied programs deserve the same question. You may give up some ability to shop the first mortgage, so compare the whole package, not just the assistance line.
What Assistance Looks Like in Practice
Across the wholesale programs Lendmire places files with, assistance comes in four shapes. All are for an owner-occupied primary residence. None requires a first-time buyer, and repeat and move-up buyers qualify.
| Shape | Share of price | Repaid? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% | Nothing to repay | 620 |
| Forgivable second | 3.5% | Forgiven over time | 640 |
| Repayable second | 3.5% or 5% | Yes, a real loan | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same as repayable | 660 |
The grant
The grant is 2% or 3.5% of the purchase price toward the FHA minimum investment. Nothing is repaid. It is released at closing with no lien, no payment and no interest. It pairs with FHA first liens only, including FHA 203(b) and the 203(k) renovation versions, at 96.5% loan-to-value on one to four units.
Eligibility is the 140% area-median-income test, unless you fall into a qualifying category: first responders, educators, medical workers, civil servants, military personnel, first-time buyers, or buyers in an underserved census tract. An HUD-approved homebuyer education course is required. The grant is not offered in Washington.
The forgivable second
This is 3.5% of the lesser of price or appraised value. There is no interest and no monthly payment. It is fully forgiven after 36 or 60 on-time first-lien payments, with no 90-day-or-greater delinquency. It pairs with FHA, HUD-184 and USDA first liens on one to two units. There is no income limit beyond USDA’s own on a USDA loan.
The repayable second
This one is a real loan. It covers 3.5% or 5% of the lesser of price or value. At 5%, that is the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It carries interest and a monthly payment, with 30-year amortization and a balloon due in year 10. It gets its own loan disclosure.
Most buyers should know what that means before choosing it. You are stacking a second payment on top of the first and planning for a balloon. It suits a buyer with a clear path to refinance or sell, or one whose income is rising.
The refinance-cost second
If you already own and want an FHA refinance, a second of 1% to 3.5% of the balance can cover closing costs, with combined leverage up to 104%. It is not for streamline refinances and has the same repayment terms as the repayable second. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
A Buyer Scenario in Plain Words
Picture a school nurse who has owned before, sold, and now rents. She has modest savings, a credit score comfortably above 640, and wants an FHA purchase. Because she is in a qualifying category (medical personnel), the grant is open to her without an income test. She would take the homebuyer course, then pair the assistance with an FHA first lien.
Now picture a buyer in a rural area with a USDA first lien and a score near 660. The grant is off the table because it pairs only with FHA. The forgivable second is the natural fit: no payment, forgiven after on-time payments, so long as he stays current.
Third, a buyer with a strong job but thin cash who wants closing costs covered. The repayable second at 5% fits, with the trade-off that a second payment arrives and a balloon looms in year 10.
Two buyers with similar incomes can land on different options because of the first lien, the credit score, and how long they plan to stay. This is a genuine toss-up in some files. Stay-versus-move timing often decides it.
Key Terms Defined
- Minimum required investment: the least cash an FHA borrower must put in, at least 3.5% of the adjusted value.
- Soft second: a second loan with no or deferred payments that is often forgiven or repaid later.
- Balloon: the lump sum that comes due at the end of a short term on a loan that amortizes over 30 years.
- Subordination: an agreement that keeps the second loan behind the first mortgage in line for repayment.
- Area median income: the local midpoint income used to set eligibility for some programs.
What Lenders Check Before the Money Moves
A lender verifying assistance wants a clean paper trail. For a gift, expect a signed letter stating the amount and that no repayment is required, plus donor details. For a government source, expect documents showing its authority. For a grant or second lien through a program, expect the program’s own terms and disclosures.
Other file basics matter too. Lenders pull an automated underwriting finding, confirm your credit floor for the option you chose, and review the property type. If you have a co-borrower with a lower score, the second-lien options may blend scores, but only when the primary wage earner earns at least 60% of household income and holds the higher score.
A few limits apply:
- No assistance on a second home, vacation home or rental. Owner-occupied primary residences only.
- Assistance cannot stack with another assistance program.
- Mortgage credit certificates are not permitted with the second-lien options.
- USDA says a down payment assistance second cannot roll into a new guaranteed refinance. It must be subordinated or paid off.
How to Start
1. Decide which first mortgage fits your price range, credit and location: FHA, USDA or HUD-184. 2. Talk to a broker or lender about which assistance shapes pair with it. 3. Ask what documentation each option requires, including homebuyer education if you pursue the grant. 4. Compare the first-mortgage terms, not just the assistance headline. 5. Consider a free or low-cost HUD-approved housing counselor through the CFPB housing counselor finder for independent advice.
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. Reach the team at 828-256-2183.
Frequently Asked Questions
Do I have to be a first-time buyer to get help from a bank or nonprofit?
No. Repeat and move-up buyers qualify for every option in the network Lendmire works with. The first-time definition is only one of the grant’s qualifying categories. Other public programs set their own rules, so definitions vary.
Can a nonprofit give me the whole down payment?
Possibly, if it is a legitimate charitable source and the funds are a documented gift or a proper loan. FHA still requires you to meet the 3.5% minimum investment from acceptable sources. The lender must verify the source, and seller-funded pass-throughs are not acceptable.
Does HUD approve nonprofit assistance programs?
No. HUD does not approve these programs. The program and the lender must make sure the funds satisfy FHA requirements. That is why a lender will ask for documentation even if a program looks official.
Will a bank’s assistance program lock me into that bank?
Often, yes. Lender-tied programs may limit your ability to shop the first mortgage. Compare the full cost of the first loan, not only the size of the help. A broker arranging through wholesale lenders can show several structures side by side.
Can I use assistance to buy a rental or vacation home?
No. Assistance is for owner-occupied primary residences only.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, USDA and HUD-184 purchase loans with down payment assistance options through wholesale lenders; every file is underwritten by the lender under the applicable program 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. USDA Rural Development Loan Origination FAQ
2. HUD Handbook 4000.1 Glossary
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Who Can Fund Your Down Payment Assistance on New Construction? · Does Down Payment Assistance Have an Income Limit? · How To Qualify For Down Payment Assistance As A Repeat Buyer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.