The Quick Read: The assistance sits on top of a government-backed first mortgage, and a new build adds paperwork that the first loan must clear before anything funds. The money shows up at closing, not when you sign the builder’s contract. Builder credits are a different animal, and they cannot replace your minimum investment on an FHA loan.
Key Takeaways
- Assistance comes in four shapes: a grant, a forgivable second loan, a repayable second loan, and a refinance-cost second loan.
- You do not need to be a first-time buyer. Repeat and move-up buyers qualify.
- The home must be your owner-occupied primary residence. Second homes and rentals are out.
- Assistance is a percentage of the price or value, and the second-loan versions are real liens.
- Builder incentives and assistance programs follow separate rules, and they do not swap for each other.
What Is Down Payment Assistance on a New Build?
It is help covering the cash you owe at closing, paired with a government-backed first mortgage. Through the wholesale lenders Lendmire works with, that first loan is FHA, USDA or HUD-184. Which assistance you can add depends on which first loan you pick.
The details live on Lendmire’s down payment assistance programs page. Here is the short comparison for a purchase.
| Shape | Size | Repay? | Credit floor | Pairs with |
|---|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 | FHA only |
| Forgivable second | 3.5% of price or value | Forgiven over time | 640 | FHA, USDA, HUD-184 |
| Repayable second | 3.5% or 5% | Yes, with payments | 660 | FHA, USDA, HUD-184 |
All of this runs through wholesale lenders, subject to program guidelines and full underwriting. These are not commitments to lend.
The grant is released at closing. There is no lien, no payment and no interest. It requires an approved homebuyer education course, and it is not offered in Washington. To qualify, your household income must be at or below 140% of the area median income, unless you fall into a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers in an underserved census tract.
The forgivable second carries no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-loan payments, depending on the version. It is still a loan until then.
The repayable second is a true second mortgage with interest, a monthly payment, and a 30-year amortization schedule. A balloon comes due in year 10. At 5%, it also covers closing costs and prepaid items.
Neither second-loan option has an income limit, except USDA’s own limits when the first loan is USDA. A fourth option, a refinance-cost second, helps with FHA refinance closing costs. It does not apply to a purchase.
Why Does a New Build Change the Steps?
A new build changes the order of events and the documents the file needs. The assistance itself works the same way. What shifts is that the lender cannot close until the home is finished, inspected and appraised.
Think of “new construction” as three stages:
- Proposed: the builder has not poured the foundation or placed permanent materials.
- Under construction: work is underway.
- Finished but never lived in: the home is complete and recently issued its certificate of occupancy.
The stage decides which inspections and builder certifications the lender collects. HUD’s Handbook 4000.1 glossary lists these stages and says a finished home counts as new for one year from its certificate of occupancy, if nobody has lived in it.
Appraisals work differently too. A home that is proposed or under 90% complete is appraised “subject to completion” per the plans. You cannot close until completion paperwork clears.
How the First Mortgage and the Assistance Get Underwritten
Both loans are reviewed together, but each follows its own rules. Here is the sequence on a typical file.
1. Choose the program before the contract. Confirm which first loan and which assistance option fit you. Builder contracts are hard to unwind, and the programs do not combine with each other.
2. Run credit and eligibility. Each option has its own credit floor. Under the second-loan options, a lower-scoring co-borrower’s score can be blended in when the main earner brings in at least 60% of household income and holds the higher score. An automated underwriting approval is required.
3. Underwrite the FHA first loan. FHA requires a 3.5% minimum investment from you, with a first loan up to 96.5% of value. An upfront mortgage insurance premium is typically financed into the loan. Annual mortgage insurance applies on top and varies by tier. Current one-unit FHA limits run from $541,287 to $1,249,125, depending on the county.
4. Layer in the assistance. The grant counts toward that 3.5% investment. The second-loan options also fund the down payment. A repayable second adds its own payment to your debt picture. A forgivable second typically does not add a monthly payment while you are making on-time first-loan payments.
5. Collect the new-build file. The lender gathers the builder’s certifications, plus a building permit and certificate of occupancy, or three inspections: footing, framing and final. HUD’s Mortgagee Letter 2020-36 sets out that documentation.
6. Close. The first loan records in first position, and the second lien sits behind it. The grant leaves no lien at all.
Assistance funds arrive at closing. So the builder’s deposit and any earnest money come from your own savings. Plan for that before you sign.
Builder Money Is Not Down Payment Assistance
Builder incentives get called “assistance” in sales offices, but the rules treat them differently. HUD’s guidance on interested-party contributions names builders and developers as interested parties. Three consequences follow:
- Interested parties may contribute up to six percent of the sales price toward closing costs and prepaids.
- Anything above six percent, or above actual costs, counts as an inducement. It reduces the price used to set your loan amount.
- Interested-party money cannot fund your 3.5% minimum investment.
So a builder credit can shrink your closing costs. It cannot stand in for your investment. Assistance funds can.
Incentives tied to a builder’s preferred lender deserve a side-by-side comparison. Ask whether that lender offers any assistance option at all. A bigger credit can lose to a smaller credit plus assistance that covers your minimum investment. Compare the full terms in writing.
Where the General Rule Breaks
Most files follow the steps above. These edge cases are where they do not.
A soft second is still a loan. “Forgivable” sounds like a gift, but FHA does not treat it that way. FHA Connection’s secondary financing page says secondary financing is not a gift, even with no payments or with forgiveness. So the source of the assistance must meet FHA’s requirements for providers. The lender confirms that, not you.
USDA wants first position. On a USDA first loan, the guaranteed loan must record ahead of the assistance lien. The second lien’s payment gets counted when the file is underwritten, even if the program is generous.
HUD-184 has no built-in assistance. The program guarantees loans for eligible Native American borrowers, on or off tribal land. Help with the down payment comes from other sources. Subordinate financing is allowed under Section 184 but counts in the qualifying ratios. Gifts from an entity with an interest in the sale, such as a builder, are treated as inducements and subtracted from the price. Our forgivable and repayable second options can pair with an HUD-184 first loan.
Nothing stacks. No option combines with another assistance program. A mortgage credit certificate is also off the table with the second-loan options. If your city or state offers its own program, you pick one path.
Appraisal shortfalls shrink the help. The second-loan options are sized on the lesser of price or appraised value. FHA’s minimum investment uses the same lesser-of test. If a new home appraises below contract price, both numbers drop. Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment shows the same pressure on a larger loan.
Delays can break the timing. If completion slips, loan terms can expire and reservations may need to be refreshed. Ask the builder for a realistic completion window before you rely on any commitment.
Primary residence only. Assistance never applies to a rental or second home. If you plan to rent the home out, this is the wrong tool.
What the Decision Looks Like in Practice
Here is the choice many buyers actually face.
Picture a renter who has sold a home in the past, so they are a repeat buyer. They want a builder’s new home inside local FHA limits. Their representative credit score is in the high 600s. Their household income sits above 140% of the area median, and they are not in a qualifying category.
The grant is out, because the income test applies and no category fits. The second-loan options have no income test, so those stay open. The decision then comes down to two shapes.
The forgivable second at 3.5% adds no monthly payment. It is forgiven after 36 or 60 on-time first-lien payments. The catch is the credit floor and the tradeoff of a second lien that stays on the home until it is forgiven.
The repayable second at 5% covers the down payment and closing costs and prepaids. You get more cash relief, but you add a second monthly payment and a balloon due in year 10. Plan now for how you would handle that balloon, whether by refinancing, selling or paying it off.
Ask yourself two questions. Can you absorb a second payment today? And do you expect to still own the home when the balloon arrives? Your answers point to the right shape.
Key Terms Defined
Minimum required investment: the cash you must put in on an FHA purchase, set at 3.5% of the lesser of price or appraised value.
Second lien: a loan recorded behind your first mortgage. If you sell or refinance, the first lien gets paid first.
Forgivable: a loan written off after you make a set number of on-time first-loan payments. Until then, you still owe it.
Balloon: a lump sum due at the end of a short term, before the loan would fully pay off.
Interested party: anyone with a stake in the sale, such as the builder, developer or listing agent.
Subject to completion: an appraisal condition for homes not yet finished. The lender needs proof that the work matches the plans.
Certificate of occupancy: the local sign-off that a finished home is safe to live in.
Next Step
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. It arranges these loans through wholesale lenders, subject to program guidelines and full underwriting. Nothing here is a commitment to lend.
Frequently Asked Questions
Can down payment assistance cover my builder deposit?
Not usually. Assistance funds arrive at closing, while deposits and earnest money are due when you sign or during the build. Plan to pay those from your own savings. After closing, the assistance supports your minimum investment and, with the 5% repayable option, closing costs and prepaids.
Do I have to be a first-time buyer for a new build?
No. Repeat and move-up buyers qualify for each option we arrange. First-time status is only one of several categories that can qualify you for the grant. The second-loan options have no first-time requirement and no income limit, except USDA’s own limits on a USDA first loan.
Can a builder credit replace my 3.5% FHA investment?
No. HUD treats builders as interested parties, and their contributions cannot fund the minimum investment. They can offset closing costs up to a cap. Your investment has to come from your own funds or from a qualifying assistance source.
What happens if the home appraises low?
The second-loan options are sized on the lesser of price or appraised value, so a low appraisal can shrink your assistance. FHA’s minimum investment is also based on the lesser figure. You may need to renegotiate the price, bring more cash, or walk away under the contract terms.
Can I use assistance if I plan to rent the home out?
No. These options are for owner-occupied primary residences only. Second homes, vacation homes and rental properties are not eligible.
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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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Handbook 4000.1 Glossary
2. HUD Mortgagee Letter 2020-36
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 To Qualify For Down Payment Assistance As A Repeat Buyer · Grant Vs Forgivable Vs Repayable Down Payment Assistance Explained · Does Down Payment Assistance Have an Income Limit?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.