The Quick Read: On an FHA, USDA or HUD-184 loan, a gift, an assistance option, or the two together can often cover the whole down payment, subject to program rules and lender review. The money has to be a true gift or an allowed assistance structure, not a disguised loan or seller money. Which one fits depends on who is giving, whether anything must be repaid, and which first mortgage sits underneath.
Everything here is for an owner-occupied primary residence. Assistance is never available on a second home or a rental.
What “Covering the Down Payment” Actually Means
Covering the down payment means the cash you must put into the deal comes from somewhere other than your savings. On an FHA loan, that cash requirement is called the minimum required investment. It is 3.5% of the lesser of the purchase price or the appraised value, for a buyer with a representative credit score of 580 or higher. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
“Representative score” is the middle score the lender uses for you. With 500 to 579, the requirement rises to 10%.
Two things decide whether outside money counts:
- The rules of the first mortgage. FHA, USDA and HUD-184 each accept different sources.
- The paper trail. The lender must prove the money is a real gift or an allowed assistance structure.
You do not have to be a first-time buyer. Repeat and move-up buyers qualify for the options below.
Closing costs are a separate bucket. A gift or assistance that covers the down payment does not automatically cover everything else you owe at the table.
Key Terms Defined
Gift: Money given with no expected or implied repayment, usually from a family member.
Grant-style assistance: A percentage of the price paid toward your minimum investment, with nothing to repay.
Forgivable second lien: A second loan behind your first mortgage. It carries no interest and no payment, and it is forgiven if you make enough on-time first-mortgage payments.
Repayable second lien: A real second loan with interest, a monthly payment and a balloon payment due years later.
Minimum required investment: The smallest amount FHA requires you to put into the purchase.
Inducement: Money from someone with a stake in the sale, such as a seller, which FHA treats as a price reduction rather than your contribution.
Can a Gift Alone Cover It?
Yes, on a primary residence, a gift can cover the entire FHA minimum investment. HUD’s knowledge base also allows gifts from an employer or labor union, and any gift toward the minimum must still meet the source rules.
The definition matters. HUD’s earlier handbook, since replaced by a newer one, defines a gift as money with no expected or implied repayment. Your lender will confirm the current wording. A loan from your uncle that you plan to pay back is not a gift. It is debt, and it changes your qualifying picture.
The donor’s own source of funds is mostly their business. FHA generally does not care how the donor got the money, as long as it did not come from a party to your sale. A donor may even borrow the funds from an acceptable source, provided you are not on that note.
The lender will ask for a gift letter signed and dated by the donor and by you. It should include:
- The donor’s name, address and phone number.
- The donor’s relationship to you.
- The dollar amount.
- A statement that no repayment is required.
The lender must also document that the money arrived. A bank transfer from the donor’s account, or funds sent straight to closing, leaves a clean trail. Cash that appears in your account without a story is what slows files down.
USDA is different. USDA’s guaranteed loan fact sheet says no down payment is required and there is no limit on gift funds. Gifts also do not count as income for qualifying purposes, since the USDA regulation excludes one-time or sporadic income.
Can Assistance Alone Cover It?
Often, yes. Across the wholesale programs Lendmire places files with, there are four shapes, and each behaves differently. Terms come through wholesale lenders, subject to program guidelines and full underwriting.
| Option | Amount | Repay? | Credit floor |
|---|---|---|---|
| Grant-style | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of lesser of price or value | Forgiven over time | 640 |
| Repayable second | 3.5% or 5% of lesser of price or value | Yes, with a balloon | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Same as repayable | 660 |
The grant. This is the cleanest structure. It is released at closing, with no lien, no payment and no interest. It pairs with FHA first mortgages only, in one to four units. You qualify if your household income is at or below 140% of the area median income, or if a qualifying category applies. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers and purchases in underserved census tracts. An HUD-approved homebuyer education course is required. The grant is not offered in Washington.
The forgivable second. This is a second loan set at 3.5% of the lesser of the purchase price or the appraised value, with no interest and no monthly payment. It is fully forgiven after 36 or 60 on-time first-mortgage payments, depending on the version. It pairs with FHA, HUD-184 and USDA first mortgages in one to two units, and it has no income limit beyond USDA’s own on a USDA loan.
The repayable second. This is a real loan. It runs 3.5% or 5% of the lesser of price or value. At 5%, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaids. It has a monthly payment, a 30-year amortization and a balloon due in year 10. It carries its own loan disclosures.
The refinance-cost second. This one is for an FHA refinance, not a purchase. It covers 1% to 3.5% of the balance toward closing costs, with combined leverage up to 104%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
A rule that surprises people: nothing stacks. You cannot combine one of these with another assistance program, and a mortgage credit certificate is not permitted with the second-lien options.
One more point. The grant and the forgivable second are different fits for different buyers. A teacher with thin savings and income under the limit might favor the grant. A buyer over the income test, or one using USDA, usually looks at a second lien.
Can You Combine a Gift With Assistance?
Usually yes, because they do different jobs. A gift is personal money from someone you know. Assistance is a program structure with its own approval and paperwork.
The catch is the stacking rule. The network’s assistance options cannot be combined with another assistance program. A family gift is not another program. It can fill the gap that assistance leaves, such as closing costs on a 3.5% option.
Say you are buying with the grant at 3.5% of the price. That covers the full FHA minimum investment. Your parents could then give a separate gift toward closing costs and reserves. Each source gets its own documentation.
Or take the forgivable second at 3.5%. It covers the down payment. Your savings plus a modest gift handle closing costs.
Over-funding can be a problem. If gift plus assistance exceeds what the file needs, the lender will question why, and the excess cannot simply be pocketed at closing. Do not stack for the sake of stacking.
Why Seller Money Does Not Count
Seller or other interested-party money cannot fund your FHA minimum investment. HUD’s earlier handbook treats payments by non-family third parties as an inducement. The maximum insurable loan is then calculated on a price reduced dollar for dollar. Gifts that fail the gift rules get the same treatment. The principle is long-standing, but the lender confirms how current guidance words it.
So the real estate agent’s “gift” and the builder’s “gift” are not gifts. They are seller help in disguise, and they do not satisfy your minimum.
Where the Rules Get Tricky
These are the named edge cases that sink files.
Government sources versus nonprofits. Government entities can fund the FHA minimum as a gift or as secondary financing. HUD does not approve assistance programs. The program and the lender have to make sure the funds meet FHA requirements. HUD’s inspector general found a past pattern where “assistance” was effectively paid back through higher costs elsewhere in the loan. That is why documentation tightened for government-funded assistance.
Legacy nonprofit rule. Under an older rule, a second lien from a nonprofit that was not a government instrumentality could not fund any part of the 3.5%. That rule comes from HUD’s archived reference guide, which predates HUD’s current handbook. Treat it as background and let your lender confirm the current treatment.
USDA’s different logic. USDA has no minimum investment, so assistance and gifts only reduce your out-of-pocket cash. USDA’s FAQ says assistance is allowed as long as the guaranteed loan stays in first-lien position.
HUD-184 and tribal help. HUD’s own page says Section 184 borrowers need 2.25% down and should check with their tribe or state housing agency. The program guarantees the loan. It does not fund assistance itself. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Disguised loans. If repayment is expected, it is not a gift. Lenders also look hard at deposits that appear from nowhere, so move gift money with a visible trail.
Borrowed down payments. Money from payday loans or credit card cash advances is a problem for down payment funds. Have your lender confirm the current wording before you rely on any loan-based source.
Order of Operations
Here is how a combined file usually runs.
1. Pick the first mortgage. FHA, USDA or HUD-184 is the foundation. It sets how much cash is required.
2. Talk to a loan officer before you shop. Your credit score decides which assistance shapes are open to you.
3. Choose the source for the gap. Grant, forgivable second, repayable second, a gift, or a mix that the rules allow.
4. Complete homebuyer education if the grant applies. You pay up front, and the cost is credited back at closing.
5. Get the gift letter early. Do not wait until the week of closing.
6. Submit for an automated underwriting finding. The second-lien options require approval from the lender’s automated system, and the repayable second does not allow manual underwriting.
7. Close. Gift and assistance funds are applied to the down payment, and to closing costs where the program allows. Any second lien is recorded behind the first.
What Changes in Your Monthly Budget
A grant and a forgivable second add no monthly payment. A repayable second does. The payments on first and second mortgages are both counted when qualifying you. For Section 184, HUD adds that a second lien adds to your debt-to-income ratio and lowers the amount you might qualify for.
FHA has its own costs underneath, too. There is an upfront mortgage insurance premium, which is a percentage of the base loan and can be financed into the loan. An annual premium follows, based on your loan size and leverage. Expect those whatever assistance you choose.
The forgivable second has a catch. It is forgiven only if you keep paying on time, with no delinquency of 90 days or more, through the forgiveness period. The repayable second has a balloon in year 10, so plan for a refinance or sale before then.
What Derails Stacked Files
- A “gift” that is really a loan from a relative.
- Cash deposits with no documented source.
- Seller or agent money counted toward the minimum.
- A credit score a few points under the option’s floor.
- Skipping the homebuyer education course when the grant requires it.
- Stacking the program with another assistance program or a mortgage credit certificate (MCC) without confirming that the program’s rules allow it.
- Buying a second home or rental, which is never eligible.
Funding and requirements shift, so confirm current availability before you count on any option.
Your Decision in Practice
A short guide:
- Family can give a lot: a gift may cover your minimum alone. Add assistance only if you want to preserve savings.
- Family can give a little: a grant or forgivable second covers the minimum, and the gift handles closing costs.
- Family can give nothing: pick the assistance shape that fits your credit, income and first mortgage.
- You want no new debt: lean toward the grant or the forgivable second. The repayable second is a loan.
- You are buying with USDA: the forgivable and repayable seconds are open. The grant is not, since it pairs with FHA.
Frequently Asked Questions
Can my parents give me the entire down payment?
Yes, on a primary residence, an acceptable donor can give the whole FHA minimum investment. The lender needs a signed gift letter and documented receipt of the funds. The gift must carry no repayment expectation.
Can I combine a gift with assistance?
Usually, yes, because a family gift is not another assistance program. Assistance options cannot be combined with each other. Both sources need their own documentation, and the lender confirms the final combination.
Can the seller or my agent provide the gift?
No. Money from anyone with a stake in the sale is treated as an inducement, not your contribution. It reduces the price used to calculate your maximum loan. It does not count toward your minimum investment.
Does covering the down payment mean zero cash to close?
Not automatically. Closing costs and prepaid items are separate. A 5% repayable second can cover closing costs and prepaids on top of the minimum, and a gift can help too. Even then, FHA expects you to have funds for borrower-paid costs.
Do I have to be a first-time buyer?
No. Repeat and move-up buyers qualify for the options described here. First-time status is only one of several categories that can open the grant.
If you are buying a primary home and want to see whether one of the down payment assistance programs fits your file, Lendmire can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage. Programs change, and every file is underwritten individually. This is not a commitment to lend.
Buyers weighing a second home or rental should know assistance is for primary residences only.
Investors who want the broader program framework can review how DSCR loans work.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging government-backed purchase loans and the down payment assistance options that sit on top of them through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4155.1 Ch. 5 Sec. B (legacy)
2. USDA RD SFH Guaranteed fact sheet
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does Down Payment Assistance Require a Homebuyer Class? · Does Down Payment Assistance Have to Be Repaid If You Relocate? · Can Any Lender Offer Down Payment Assistance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.