The Quick Read: A new-construction purchase with assistance has to pass two separate tests, and a miss on either one stops the loan. The first test is the home: the builder paperwork has to meet the first mortgage program’s rules. The second is the assistance itself: it must be structured and documented so it fits that same first mortgage. A buyer can qualify for a program and still be stopped by the property file, and the reverse happens too.
Key Takeaways
- A home counts as “new” when it is proposed, under construction, or finished but never lived in. The first mortgage program decides the exact definition.
- Assistance comes in four shapes: a grant, a forgivable second, a repayable second, and a refinance-cost second. Only the first three apply to a purchase.
- Builder money is not assistance. Credits from the seller side are treated as limited concessions, not a source of down payment.
- You do not have to be a first-time buyer. You do have to live in the home as your primary residence.
- Missing builder documents can cap leverage or stall the file, even when your assistance is approved.
Why New Builds Get Extra Scrutiny
A resale home already exists. Its condition, value and occupancy are visible. A new build may have no walls yet, so the lender has to rely on plans, builder certifications and inspections. Every extra document is another place a file can stall.
Assistance adds a second layer. Lenders arranging down payment assistance programs sit between the first mortgage rules and the assistance rules. Both have to agree.
One note on scope. This article covers what a buyer pays toward a home purchase. It does not cover deposit rules for hiring a contractor, which is a different topic. Assistance is also for an owner-occupied primary residence only. It does not apply to a second home or a rental.
Four Shapes of Assistance (and How Each Fits a New Build)
Across the wholesale programs Lendmire arranges files with, assistance takes four forms. Each is a percentage of price or value. Each pairs with a government first mortgage, subject to program guidelines and full underwriting.
| Shape | Size | Repay? | First lien it pairs with |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | FHA only |
| Forgivable second | 3.5% of lesser of price or value | Forgiven after 36 or 60 on-time payments | FHA, USDA, HUD-184 |
| Repayable second | 3.5% or 5% of lesser of price or value | Yes, with a balloon in year 10 | FHA, USDA, HUD-184 |
| Refinance-cost second | 1% to 3.5% of balance | Yes | FHA refinance |
The grant goes toward the FHA minimum investment. It is released at closing with no lien, no payment and no interest. The credit floor is 620. The buyer needs household income at or below 140% of area median income, or must fit a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and homes in underserved census tracts. A homebuyer education course is required. The grant is not offered in Washington.
The forgivable second carries no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-mortgage payments, and the credit floor is 640. There is no income limit beyond USDA‘s own on a USDA first lien.
The repayable second is a real loan. It has interest, a monthly payment, 30-year amortization and a balloon due in year 10. At 5%, it also covers closing costs and prepaid items. The credit floor is 660, and manual underwriting is not allowed.
The refinance-cost second helps with closing costs on an FHA refinance, with combined leverage up to 104%. It does not help buy a new build, so the rest of this article leaves it aside. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Nothing stacks. You cannot combine one assistance option with another assistance program.
Test One: Is the Home “New” and Is the File Complete?
For FHA, a home is new when it is proposed, under construction, or finished within the past year and never occupied. USDA uses a similar line: a new dwelling is under one year old and has never been occupied. A home that someone has lived in may be treated as existing construction, even if it is only months old.
On an FHA file, the appraiser needs the builder’s signed certification of plans, specifications and site before appraising. That is Form HUD-92541. At closing the buyer and builder also receive a warranty of completion. These are lender-file items, so a missing form can stop the loan even when everything else is ready.
The warranty rules have loosened. A 2019 HUD mortgagee letter removed the 10-year warranty requirement for FHA new construction. The buyer keeps a one-year builder warranty covering defects in equipment, material or workmanship. Many buyers still assume the 10-year version is required. It is not.
USDA is stricter about documentation. The lender must show certified plans, construction inspections and thermal standards. For inspections, the USDA new construction guidance offers three evidence paths:
1. A certificate of occupancy from a local office that did at least three phase inspections, plus a one-year builder warranty.
2. Three construction-phase inspections including the final, plus a one-year warranty.
3. A final inspection plus a 10-year insured builder warranty.
A self-builder cannot warrant their own home. The USDA loan origination FAQ adds that a new home lacking the minimum plan, inspection and warranty documents is limited to 90 percent loan-to-value. That cap can wreck a plan built around assistance filling the gap.
For HUD-184 loans, new construction is allowed, and the rules include construction-completion paperwork. Assistance terms on those files should be confirmed with the lender before you sign a builder contract.
Test Two: Is the Assistance Allowed and Documented?
Federal rules put limits on any second loan behind an FHA mortgage. Under 24 CFR 203.32, a government agency’s second lien needs approval and must keep combined payments within the borrower’s reasonable ability to pay. Other second mortgage holders cannot require a balloon payment before year 10, except on sale or refinance, and the borrower must be able to prepay without penalty. The repayable second’s balloon sits in year 10 for that reason.
Gifts and grants need a paper trail. The lender wants the amount, proof that nothing must be repaid, and a transfer you can trace. FHA does not allow gifts used to pay off debts.
Builder money is a separate issue. Builders, developers and sellers are interested parties. Their credits are capped and limited to closing costs. They are not a gift and not assistance. This rule exists because seller-funded assistance once led to higher default rates and, in some cases, inflated prices.
The Approval Sequence, Step by Step
1. Choose the first mortgage. FHA, USDA or HUD-184 sets the property rules. FHA sits underneath all of it: 3.5% minimum investment, 96.5% first-lien leverage, and an upfront mortgage insurance premium financed into the loan. Annual insurance varies by loan tier.
2. Check the limits. FHA one-unit loan limits vary by county. The grant cannot pair with a high-balance first lien.
3. Sign the builder contract. Do this after you know which assistance shape fits, because contract terms drive the file.
4. Apply and disclose. The assistance is disclosed at application. A repayable second is a consumer loan with its own disclosure, including a balloon disclosure.
5. Complete the builder file. The lender collects the certifications, plans, inspections and warranty items for your program.
6. Appraise. On a new build, the appraiser works from plans and the signed builder certification. Assistance on the second liens is based on the lesser of price or appraised value, so a low appraisal shrinks it. Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment shows the same mechanic on a bigger loan.
7. Underwrite. The repayable second’s payment counts in your affordability. A forgivable second carries no payment but is still disclosed. Automated underwriting must approve the file on the second-lien options.
8. Close and live there. Funds should trace to the settlement statement. The one-year warranty starts when title transfers.
Where the General Rule Breaks
Long build times. Education certificates, income documents, and your lock and assistance reservations can expire before the home is done. Ask the lender what happens if the build runs late, before you sign.
Missing USDA documents. The 90% cap above turns a thin-down-payment plan into a bigger cash need.
Builder-paid “down payment.” Some sales pitches blur builder credits and assistance. They are different. Treat builder help as a limited closing-cost concession.
Resale clauses. Recapture or repayment terms that could force you to pay more than you received can clash with FHA’s limits on conveyance. The assistance documents need a read before closing.
Single-close construction loans. USDA and HUD-184 both have construction-to-permanent paths with separate rules. Do not assume assistance works the same way there.
Renovation escrow. On the second-lien options, minor non-structural repairs up to $5,000 can be held in escrow at 150% of the estimate. That is a punch-list tool, not a build-out tool.
Later refinancing. A USDA assistance second generally has to be subordinated or paid off in a guaranteed refinance. Plan for that.
Key Terms Defined
Proposed construction: a home where no concrete or permanent material has been placed yet.
Interested party: a seller, builder, developer, agent or lender with a stake in the sale, whose contributions are limited.
Forgivable second: a second loan with no payment that is wiped out after a set number of on-time first-mortgage payments.
Balloon payment: the remaining balance of a loan, due in one lump sum at a set date.
Certificate of occupancy: a local sign-off that a finished home is safe to live in.
What the Decision Looks Like in Practice
Picture a renter buying a builder’s finished home and short on savings. If household income sits under the 140% test, or the buyer fits a category such as educator or first responder, the grant is the cleanest fit. There is nothing to repay and no lien. The buyer must use an FHA first lien and complete the education course.
Now picture a repeat buyer moving up to a to-be-built home. The grant may be out if income is high and no category applies. A forgivable second, which has no income cap, could work with an FHA first lien. That buyer should ask what happens to the assistance if the build slips.
Or consider a buyer in a rural area using USDA. Either second can sit behind the USDA loan, but the builder file has to be complete or leverage drops to 90%. That decision comes before assistance.
The honest tradeoff: the forgivable second has no monthly payment, but it comes with a 36 or 60 on-time payment commitment and a lien. The repayable second can cover closing costs at 5%, but it adds a payment and a balloon. The grant, by contrast, has nothing to repay, while each second lien is a loan with its own terms.
Next Step
Before signing a builder contract, ask the lender four things: which first mortgage fits, which assistance shape fits, what documents the builder must supply, and what happens if completion slips. If you are buying a primary home and want to see whether a down payment assistance option fits your file, Lendmire, a mortgage broker arranging consumer loans in 16 states, can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage. Programs change, each file is underwritten individually. This is not a commitment to lend.
Frequently Asked Questions
Can the builder pay my down payment?
No. Builders are interested parties, so their money is limited to a capped closing-cost concession. It is not a gift and not assistance. Assistance has to come from an allowed program source and be traceable on the settlement statement.
Do I need to be a first-time buyer to use assistance on a new build?
No. Repeat and move-up buyers qualify. The three-year first-time definition is only one of the grant’s qualifying categories, and the second-lien options have no first-time requirement at all. The home must be your primary residence.
Does FHA still require a 10-year warranty on new construction?
No. a 2019 HUD mortgagee letter removed it, and the one-year builder warranty remains. USDA treats a 10-year insured warranty as one of its accepted options rather than a requirement.
What happens if I cannot get the builder’s documents?
On an FHA file, the appraisal cannot move forward without the signed builder certification. On USDA, the loan can fall to a 90% cap. Either way, any plan that counted on assistance to cover the gap needs a second look.
Can I combine two assistance programs on one new build?
No. Nothing stacks with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options. Compare the shapes first and pick one.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, USDA and HUD-184 home purchase financing with grant-style, forgivable and repayable down payment assistance options in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. USDA
2. HUD Form 92541, Builder’s Certification of Plans, Specifications & Site
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 A Repeat Buyer Get Down Payment Assistance On A Primary Home? · FHA Loan CLTV and Second Lien Rules With Down Payment Assistance · How to Qualify for Down Payment Assistance When You’re Self-Employed
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.