The Quick Read: Assistance can work on a newly built home, but the source of the money decides everything. Builder or seller money cannot fund your FHA minimum investment, while a qualifying assistance option can. The builder can still help with closing costs, up to a cap. Construction paperwork and the assistance paperwork run as two separate tests, and the file has to pass both.
Key Takeaways
- Two tests run side by side: whether the assistance source counts, and whether the new-construction documents are complete.
- Builder money can offset closing costs within a cap. It cannot be your minimum investment on an FHA loan.
- Four assistance shapes exist: a grant with nothing to repay, a forgivable second, a repayable second, and a refinance-cost second.
- You do not need to be a first-time buyer. The home must be your owner-occupied primary residence.
- Nothing stacks with another assistance program.
What Is Down Payment Assistance, and Where Does the Money Come From?
Down payment assistance is money that covers part of the minimum investment on a government-backed first mortgage. The money does not come from you, the builder or the seller. It comes from an assistance program placed alongside the first loan.
Across the wholesale programs Lendmire places files with, assistance comes in four shapes. Each is a percentage of price or value, never a fixed dollar promise. Which shape you choose sets how the file is underwritten and what you owe later. Lendmire is a mortgage broker licensed for consumer lending in 16 states. It arranges these structures through wholesale lenders, subject to program guidelines and full underwriting. Nothing here is a commitment to lend.
You can read more on Lendmire’s down payment assistance programs page. The rest of this piece focuses on what changes when the home is new.
The Four Shapes of Assistance
| Shape | Size | Repay? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of lesser of price or value | Forgiven over 36 or 60 payments | 640 |
| Repayable second | 3.5% or 5% of lesser of price or value | Yes, with a balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms as repayable | 660 |
The grant. It is released at closing, with no lien, no payment and no interest. It pairs with FHA first liens only. Eligibility is a household income at or below 140% of area median income, or a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and homes in underserved census tracts. An HUD-approved homebuyer education course is required. The grant is not offered in Washington.
The forgivable second. It carries no interest and no monthly payment. It is forgiven in full after 36 or 60 on-time first-lien payments, depending on the version. Until then it is a lien and a real loan. It pairs with FHA, USDA and HUD-184 first mortgages.
The repayable second. This is a true second loan. It is interest-bearing, has a monthly payment, amortizes over 30 years and comes due in a balloon in year 10. At 5%, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It has its own disclosures. It adds a payment, which can shrink the first loan you qualify for.
The refinance-cost second. This one is for owners, not new-home buyers. It covers 1% to 3.5% of the balance toward the cost of an FHA refinance. It appears here only so the full menu is clear.
All of these are for an owner-occupied primary residence. A second home or rental never qualifies. Nothing combines with another assistance program, and a mortgage credit certificate is not allowed with the second-lien options.
How Is the First Mortgage Underwritten Under the Assistance?
On an FHA loan, the minimum required investment is 3.5% of the lesser of price or appraised value. That leaves 96.5% first-lien leverage. FHA also charges an upfront mortgage insurance premium on the base loan, which can be financed into the loan. Annual mortgage insurance varies by tier.
For 2026, FHA one-unit loan limits run from $541,287 to $1,249,125, depending on the county. A buyer in a high-cost county has far more room than one in a low-cost county.
Assistance changes what counts as your minimum investment. It does not change the construction paperwork. A grant or forgivable second must pair with the right first lien. The repayable second adds a payment to your debt ratios, while the grant and forgivable versions usually do not. Credit floors for the assistance options sit above FHA’s own minimums. Second-lien files need an automated underwriting approval, and the repayable second does not allow manual underwriting.
Why Builder Money Cannot Fund Your Minimum Investment
On FHA loans, builders and sellers are “interested parties,” and interested-party money cannot be used toward the minimum required investment. HUD’s FHA guidance on interested-party costs spells this out. Interested parties may pay certain borrower closing costs and prepaids, up to a cap set as a percentage of the sales price.
Anything beyond actual costs, or beyond that cap, counts as an inducement to purchase. An inducement lowers the price dollar for dollar when FHA works out the value it will lend against. The lender must document all of these contributions on the sales contract, form HUD-92900-LT and the Closing Disclosure.
In practice, a builder offering “buyer incentive cash” is not offering a down payment. It can offset closing costs. It cannot stand in for assistance from a qualifying source.
A related point: if an organization calls itself a government assistance provider, FHA lenders must document that it really is one. A law-firm summary of HUD’s mortgagee letter describes the proof the file needs. That includes evidence of governmental authority, an attorney’s legal opinion dated within two years of closing, and evidence of the fund transfer. A builder-funded program fails that test.
How the New-Construction Test Works
The construction test is separate from the assistance test. In HUD’s handbook, new construction covers proposed construction, homes under construction, and homes less than one year old. Proposed construction means no concrete or permanent material has been placed.
A 2020 HUD mortgagee letter set the current document path. It removed the Early Start Letter and pre-approval requirements. It made the Warranty of Completion (HUD-92544) a requirement for all new construction. For proposed construction, the lender gets the building permit and certificate of occupancy, or three local inspections: footing, framing and final.
The core document is the builder’s certification of plans, specifications and site, form HUD-92541. It covers site hazards, including flood zone status. An older HUD archive guide describes how the certificate must be dated close to the appraisal order and lists the full appraisal package. That page is archived, so treat the timing detail as a pointer and confirm current requirements with your lender. The underwriter reviews the appraisal and builder certification together.
Here is the catch. A missing certification or certificate of occupancy can stall a file even when your assistance is fully approved. Funds do not make up for missing construction paperwork.
Step by Step: How a New-Build File Moves
1. Pick the assistance shape. Match it to your situation: grant if you meet the income test or a category, forgivable if you want no payment, repayable if you need the 5% closing-cost coverage.
2. Sign the contract with the cap in mind. Any builder credit is written into the contract and counts toward the six percent limit.
3. Order the appraisal. The lender orders it with a current HUD-92541. If the home is under 90% complete, the appraiser needs the plans and plot plan.
4. Document the assistance. The file needs the program paperwork, and a grant needs proof of the homebuyer education course.
5. Document construction. Proposed construction needs the permit and certificate of occupancy or the three inspections.
6. Close. Interested-party credits appear on the Closing Disclosure. The one-year warranty and builder certification go into the endorsement binder. Loan Estimate and Closing Disclosure timing rules apply, and a repayable second has its own disclosure.
Five things decide the outcome: whether the source qualifies, whether funds count toward the minimum investment or only closing costs, lien position, whether construction documents are complete, and household income where a program tests it.
Where the Rules Break: USDA and HUD-184 Variations
USDA. USDA’s loan origination FAQ allows assistance as long as the guaranteed loan stays in first lien position. It also says assistance funds are not your own funds. For a new dwelling where the construction documentation cannot be obtained, the loan is limited to 90% of appraised value plus any financed upfront guarantee fee. USDA counts the income of all adult household members, not only those on the note. The home must be your primary residence.
HUD-184. This guaranteed loan serves Native American borrowers and allows new construction on and off native lands. HUD’s program page lists 1-4 unit homes and fixed-rate terms of 30 years or less. Tribes can fund assistance, and many tribal awards are structured as forgivable seconds, according to a federal rulemaking notice. Individual trust-land homes need Bureau of Indian Affairs lien approval. Single-close construction holds funds in escrow and releases them as work is completed, though that detail comes from older material, so confirm it with the program office.
The grant option. It pairs with FHA first liens only. A buyer who wants USDA or HUD-184 uses a forgivable or repayable second instead.
Early sale or refinance. Selling or refinancing before a second lien is forgiven or repaid can trigger repayment. Check the terms before you sign.
Common Mistakes That Stall New-Build Files
- Assuming builder cash is a down payment. On FHA, it is not.
- Treating a “grant” label as proof of no strings. Some programs labeled grants are forgivable seconds with residency rules. Lendmire’s grant has nothing to repay. The forgivable second is a lien until forgiven.
- Ignoring the payment. A repayable second adds a monthly payment that can shrink the first loan.
- Stacking programs. Two assistance programs on one file are not allowed.
- Buying a rental or second home. Assistance is for owner-occupied primary residences only.
- Assuming the options work the same way. The grant is 2% or 3.5% of the purchase price with nothing to repay, and it requires a 620 credit score, an FHA first lien, homebuyer education, and income at or below 140% of area median unless a category applies. The forgivable second is 3.5% and is forgiven after 36 or 60 on-time first-lien payments, so it stays a lien until then.
Where lender overlays apply, a buyer can be technically eligible under a program and still be declined by the lender. Ask early.
Key Terms Defined
Minimum required investment: The share of price or value an FHA borrower must put in, 3.5% for maximum financing.
Interested party: A builder, seller, agent, developer or lender with a stake in the sale.
Inducement to purchase: Seller or builder money beyond actual costs or the six percent cap, which lowers the value FHA uses.
Forgivable second: A second lien with no interest and no payment that is forgiven after enough on-time first-lien payments.
Balloon: A lump sum due at the end of a loan term, in year 10 for the repayable second.
HUD-92541: The builder’s certification of plans, specifications and site.
What the Decision Looks Like in Practice
A renter buying a first new build with thin savings often looks at the grant first, if income or a category fits. A public-service worker usually clears the category test without an income calculation. A repeat buyer moving up into new construction may prefer a forgivable second to avoid a new monthly payment, and that buyer needs a 640 credit floor. Someone who needs help with closing costs as well as the down payment looks at the repayable second at 5%, accepting the payment and the year-10 balloon.
Frequently Asked Questions
Can the builder pay my down payment on an FHA loan?
No. Builder and seller money counts as interested-party funds and cannot fund the minimum required investment. It can offset actual closing costs, prepaids and points, up to six percent of the sales price. Anything above that lowers the value FHA lends against.
Do I have to be a first-time buyer to use assistance on a new home?
No. Repeat and move-up buyers qualify. The first-time definition is only one of the qualifying categories for the grant. The second-lien options carry no income limit beyond USDA’s own on a USDA first lien.
Can I use these options to build on my own lot?
It depends on the first-lien program and the construction structure, and not every build fits. Proposed construction follows a different document path than a completed home. Run the specific plan past a loan officer before you commit to a builder contract.
Will a forgivable second add to my monthly payment?
No. It carries no interest and no payment, and it is forgiven after the first 36 or 60 on-time first-lien payments, depending on the version. A repayable second does add a payment, and it comes due in a balloon in year 10.
Does this work on a vacation home or rental?
No. Assistance is for an owner-occupied primary residence only.
If a low appraisal changes your financing math on a larger new build, Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment walks through the mechanics.
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.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. Down payment assistance options are arranged alongside FHA, USDA and HUD-184 first liens through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. USDA
2. HUD FHA Answers: interested party costs
3. Consumer Finance Monitor: HUD governmental DPA requirements
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Loan CLTV and Second Lien Rules With Down Payment Assistance · How to Qualify for Down Payment Assistance When You’re Self-Employed · Can A Repeat Buyer Get Down Payment Assistance On A Primary Home?
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.