The Quick Read: No, not for the cash investment you owe on an FHA loan. A builder counts as an “interested party” in the sale, so its money cannot satisfy your minimum required investment. A builder can pay certain closing costs, up to a cap. The legitimate way to close a down payment gap is your own savings, a gift from an eligible donor, or a separate assistance program layered under the builder’s deal.
Why Can’t the Builder Just Pay My Down Payment?
The builder profits from the sale, so its money is treated as a price cut in disguise, not as your equity. FHA wants the buyer to have real money in the deal. Money from the seller or builder does not count.
HUD’s gift-donor language names the seller, the real estate agent, the builder and any associated entity as people who cannot give you a gift toward the investment. A Congressional Research Service report summarizing HUD’s rules explains that HUD treats gifts from these sources as inducements to purchase. The amount gets subtracted from the sales price. That lowers the maximum loan FHA will insure.
There is history behind this. Years ago, some nonprofits handed buyers a “gift,” then got repaid by the seller. Congress shut that door in 2008. Per the HUD tribal consultation transcript, the law bars the seller, and anyone who benefits financially from the transaction, from supplying the down payment. That transcript also confirms FHA’s minimum investment is 3.5 percent.
Here is the logic in plain terms. If the builder funds your 3.5 percent, you have put in nothing. The loan then carries the full risk of a deal where the buyer has no stake. Lenders and HUD see that as the exact problem the rule was written to stop.
What Can the Builder Pay For?
Closing costs, prepaid items and certain buydown costs, within a cap. On an FHA loan, a builder or other interested party can pay toward origination fees, other closing costs and the upfront mortgage insurance premium. Per the HUD FHA FAQ on interested-party costs, the total is capped at 6 percent of the sales price.
Three tests apply to every dollar of builder money:
- It cannot exceed your actual eligible costs.
- It cannot exceed 6 percent of the sales price.
- It cannot go toward your minimum required investment.
Anything above those limits is an inducement. It reduces the purchase price dollar for dollar when the lender works out the adjusted value, before the loan-to-value percentage is applied. In practice, a credit that is too big does not give you extra cash. It shrinks the loan, and you bring more money to closing.
The credit also has to be written into the purchase contract or another binding document. HUD says the lender documents it on the sales contract, form HUD-92900-LT and the Closing Disclosure.
A few other perks sit in a gray zone. Decorating allowances, repair allowances and moving costs get treated as inducements to purchase too. Ask the lender before you count on any of them.
How Do Builder Credits and Your Down Payment Work Together?
Think of two separate buckets: money you must invest, and money for costs. The builder can fill the second bucket. It cannot touch the first.
Here is why that still helps. Say your savings must cover the 3.5 percent minimum investment on an FHA loan. If the builder pays eligible closing costs, you keep your savings for the investment instead of spending them on fees. A credit that frees up cash can indirectly make the down payment reachable. It just can’t be the down payment.
Your own investment can legitimately come from savings, a family gift or an employer gift. A gift letter has to show the donor’s name, address, phone number and relationship to you, the dollar amount, and a statement that no repayment is required. HUD’s FAQ on gifts lists these elements.
If the money looks like it came from the builder in any form, expect the underwriter to dig. That includes a gift routed through a relative, a third-party nonprofit or a builder-affiliated entity.
Where Does Down Payment Assistance Fit?
It sits underneath the builder deal as its own, separate source of funds. Across the wholesale programs Lendmire places files with, assistance comes in four shapes. You can compare them on the down payment assistance programs page. Here is how each works.
| Option | Size | Repay? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of price or value | Forgiven after 36 or 60 payments | 640 |
| Repayable second | 3.5% or 5% of price or value | Yes, 30-year amortization, balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms | 660 |
The refinance-cost option applies to refinances, so it does not matter for a new-construction purchase. The first three are the ones to weigh.
The grant goes toward your FHA minimum required investment. It is released at closing, and there is no lien, payment or interest. It pairs with FHA first liens at 96.5 percent loan-to-value. You qualify if household income is at or below 140 percent of the area median income, or if you fall into a qualifying category. Those include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers in an underserved census tract. An HUD-approved homebuyer education course is required. The grant is not offered in Washington, and it can’t be combined with other assistance programs.
The forgivable second is a loan with no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-lien payments, depending on the version. It pairs with FHA, USDA or HUD-184 first mortgages on one- to two-unit homes. No income limit applies beyond USDA’s own limits on a USDA first lien.
The repayable second is a real loan. It carries interest, a monthly payment, 30-year amortization and a balloon due in year 10. At 5 percent, it also covers closing costs and prepaid items: the 3.5 percent minimum investment plus 1.5 percent toward costs. It has its own disclosures at closing.
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify. All of this assumes a primary residence you will live in, subject to program guidelines and full underwriting. Assistance is never available on a second home or a rental.
For a related look at how a new-build appraisal can reshape the cash you need, see Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment.
Is Assistance Money From a Public Program Always Safe?
No. The source of the money and how it is documented decide whether the lender accepts it. A governmental entity can provide FHA investment funds only when it acts in its governmental capacity. HUD Mortgagee Letter 19-06 sets the paperwork lenders must collect to prove that.
Some government-entity programs failed these requirements. Some of those programs had borrowers take a premium interest rate and repay the assistance through higher payments and fees. HUD allows lender premium pricing to cover closing costs but prohibits using it to provide down payment assistance.
Three questions decide how a file reads:
1. Who is the true source of the assistance money?
2. Does the builder reimburse that source in any way?
3. Is the builder’s credit confined to eligible closing costs, within the cap?
HUD addressed the workaround long ago. In Mortgagee Letter 89-16, the agency said that a builder funding a down payment through a local community group merely circumvents the prohibition. Pass-through structures do not get a pass because a nonprofit sits in the middle.
Many public programs also cap assistance or add recapture periods. Terms vary by state. Public assistance typically arrives as a forgivable grant, a zero-interest deferred second, or a fully amortizing second.
What About USDA and HUD-184 on New Construction?
The same core idea holds, but the details differ. The USDA guaranteed loan lets buyers finance up to 100 percent of appraised value, so there is no required down payment on that first lien. Seller and interested-party contributions are capped at 6 percent of the sales price, and they must serve an eligible loan purpose. Those limits also do not apply to single-close construction-to-permanent loans.
Do not over-read that exception. It addresses the cap on contributions, not where down payment assistance money may come from. A lender has to confirm how it applies to your file. USDA does allow secondary financing such as assistance loans, subject to subordination rules on a later refinance.
HUD-184 serves Native American and Alaska Native borrowers. HUD says the down payment is 2.25 percent and suggests checking with the tribe or housing finance agency for help. The program allows new construction and single-close construction loans. Confirm any builder-contribution rule with a Section 184 lender and your tribe before you sign a builder contract that relies on a credit.
Builder Incentive or Outside Lender: Which Wins?
Compare total cost, not the headline credit. Builders often tie their biggest incentives to an affiliated lender. That is a legitimate offer, and sometimes it is the best one. It is also a string.
Premium pricing is one wrinkle. On FHA loans, lender credits from premium pricing sit outside the 6 percent limit, but only if the lender is not the seller, agent, builder or developer. If the builder owns the lender, that exclusion does not apply.
A simple way to compare:
- Get a Loan Estimate from the builder’s lender and one from an outside lender.
- Line up the credit, the loan terms and the cash to close.
- Ask whether a price cut would beat the credit. A lower price can help the appraisal and the loan size. A credit can help your cash at closing. Neither wins every time.
You are generally free to shop for your own lender, and comparing offers is a normal step. Misstructured builder money can lead to a lower maximum loan, a lender rejecting the funds, or a deal that changes late in the process. That is a bad week to learn the rules.
How Does Assistance Change My Monthly Budget?
It depends on the shape you pick. A grant adds no payment. A forgivable second usually adds none either, but it creates a lien, and an early sale or refinance can trigger repayment before it is forgiven. A repayable second adds a monthly payment, which raises your debt-to-income ratio.
A buydown the builder pays for counts inside the 6 percent cap. Take that into account before you use the whole cap on something else.
Underneath all of it sits the FHA loan itself. FHA’s minimum investment is 3.5 percent, and first-lien leverage tops out at 96.5 percent. The upfront mortgage insurance premium is 1.75 percent of the base loan and can be financed into the loan. Annual mortgage insurance applies on top, set by loan size and leverage. For 2026, one-unit FHA loan limits run from $541,287 to $1,249,125 by county.
Key Terms Defined
Interested party: Anyone who profits from the sale, such as the builder, seller, real estate agent or an affiliated company.
Minimum required investment: The share of the price you must put in yourself on an FHA loan. It is 3.5 percent.
Seller (builder) concession: A credit toward your eligible closing costs, limited by a cap.
Inducement to purchase: A benefit from an interested party beyond the allowed costs. Lenders subtract it from the price.
Soft second: A second loan with no payment, often forgiven over time if you stay current.
Balloon: A lump-sum balance due at one point, such as year 10 on a repayable second.
A Practical Checklist Before You Sign
1. Ask the builder what the credit may cover, and get it written into the contract.
2. Confirm with your lender that the credit stays within the cap.
3. Keep your own investment funds separate and documented.
4. Have any gift letter ready, with every required detail.
5. If you want assistance, pick the shape first, then confirm it pairs with your first lien.
6. Compare Loan Estimates from the builder’s lender and an outside lender.
7. Ask whether the builder’s upgrade deposits or earnest money change the cash you need.
A custom build with phased contractor draws is a different thing from your down payment. Do not confuse the two when someone quotes you a schedule.
Frequently Asked Questions
Can a builder pay my down payment?
No, not on an FHA loan. Builders are on HUD’s prohibited-donor list, so builder money cannot count toward your minimum required investment. The builder can pay eligible closing costs within the cap.
Can builder credits cover my closing costs?
Yes, up to 6 percent of the sales price on an FHA loan, and only for eligible costs. Credits above your actual costs or the cap reduce the price the lender uses, which lowers your loan.
Can I use builder money plus assistance?
Often, yes, if each dollar has a clear, permitted job. The builder’s credit covers allowed closing costs, and an assistance option supports your investment. The assistance cannot be reimbursed by the builder, and it cannot be stacked with another assistance program. Terms are subject to program guidelines and full underwriting.
Do I need to be a first-time buyer?
No. Repeat and move-up buyers can qualify for the options Lendmire arranges, and none of them requires you to be a first-time buyer. 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 qualifying category applies. The home must be your primary residence. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
Do I have to use the builder’s lender?
Generally no. You can compare lenders and Loan Estimates. A builder may attach its best incentive to its own lender, so compare the total cost of both offers before deciding.
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. Rules and programs change, and nothing here is a commitment to lend.
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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References
2. HUD tribal consultation transcript on down payment assistance
3. HUD FHA FAQ: Interested party costs
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 Much Down Payment Assistance Can You Get? · 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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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.