The Quick Read: These are two different tools that solve two different problems. Assistance helps you come up with the down payment. A seller credit helps with closing costs and prepaid items, and the seller’s money generally cannot be your down payment. The assistance options Lendmire arranges sit on FHA, USDA and HUD-184 first mortgages, so a plain conventional loan is the contrast case here. Pick assistance if your cash shortfall is at the front of the deal. Pick a seller credit if the shortfall is at the closing table. Some buyers use both, within each program’s limits.
Side-by-Side
The table compares the two tools on the points that decide a file. Assistance figures describe the options Lendmire arranges through wholesale lenders, subject to program guidelines and full underwriting.
| Factor | Down payment assistance | Seller credit |
|---|---|---|
| Who provides the money | A program, through a second lien or grant | The seller, by contract |
| What it can pay | Minimum investment; closing costs at one tier | Closing costs, prepaids |
| Can it fund the down payment? | Yes | Generally no |
| Repayment | Grant: none. Forgivable: none if on-time. Repayable: yes | None |
| Credit floor | 620 / 640 / 660 by option | Set by the first loan |
| Income test | Grant: 140% of area median income unless a category applies. Seconds: none beyond USDA’s | None |
| First-lien pairing | FHA, USDA or HUD-184, by option | Any loan, within its cap |
| Counseling | Grant requires a HUD-approved course | Not required |
| Where it is arranged | Through the lender and program | Negotiated in the contract |
Key Takeaways
- A seller credit pays costs. It does not build your down payment.
- Assistance comes in four shapes: a grant, a forgivable second, a repayable second and a refinance-cost second.
- No option requires a first-time buyer. Repeat buyers qualify.
- Assistance is for an owner-occupied primary residence only.
- A second lien is a loan. Read the terms before you sign.
What Is the Honest Answer on Which One Fits?
Assistance fits a buyer whose savings fall short of the required minimum. Seller credits fit a buyer who has the down payment but not the cash for closing costs. A renter with thin savings, a public-service worker, or a repeat buyer between homes is the usual assistance file. A buyer who can cover the down payment but is stretched by fees is the usual seller-credit file.
Nobody has to be a first-time buyer for any of the options. The grant’s three-year “no ownership” definition is only one of several ways to qualify.
The title says “conventional loan.” The assistance options that Lendmire arranges do not sit under a conventional first mortgage. They pair with FHA, USDA and HUD-184 loans. So this article treats conventional rules as the comparison point. It then shows how seller credits work on both sides of that line.
How Do Seller Credits Actually Work?
A seller credit is written into the purchase contract. The seller agrees to pay certain buyer costs, and the lender checks that credit against a cap. The money pays closing costs and prepaid items. It does not reach the buyer as cash.
Caps depend on the loan type. Fannie Mae’s Selling Notice puts conventional limits between 2% and 9% of property value. The limit steps up as the buyer’s own down payment grows. A buyer with a small down payment gets the lowest ceiling.
The same Fannie Mae material treats customary seller-paid agent commissions separately from those limits. Two more points matter on conventional files:
- Seller money cannot be the buyer’s down payment or reserves.
- Seller money routed through a nonprofit still counts as a seller contribution.
On FHA, the limit is 6%. The credit cannot cover the borrower’s minimum required investment. It also says anything above actual costs is an “inducement to purchase.” That excess lowers the value used to set the loan, dollar for dollar. The lender documents the credit on the contract and the Closing Disclosure.
USDA also sets a 6% cap. Seller money may pay part or all of the upfront guarantee fee. It also says interested parties are not eligible gift donors. For HUD-184, seller-credit limits exist too. The lender confirms them against the program handbook.
What Does Down Payment Assistance Look Like in Practice?
Across the wholesale programs Lendmire places files with, there are four shapes. Each is a percentage of price or value. Lendmire’s down payment assistance programs page lays out each option. Here is how they differ.
The grant. It provides 2% or 3.5% of the price toward the FHA minimum investment. Nothing is repaid. It releases at closing with no lien, no payment and no interest. The credit floor is 620. Eligibility is any one of these:
- Household income at or below 140% of area median income.
- A qualifying category: first responder, educator, medical worker, civil servant or military member.
- A first-time buyer.
- A home in an underserved census tract.
An HUD-approved homebuyer education course is required. The buyer pays for it up front, and the cost is credited back at closing. The grant pairs with FHA first liens only and is not offered in Washington.
The forgivable second. It provides 3.5% of the lesser of price or appraised value. There is no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-lien payments, depending on the version. The credit floor is 640, or 660 on a blended score. It pairs with FHA, USDA and HUD-184 first liens on one-to-two-unit homes.
The repayable second. It provides 3.5% or 5%. At 5%, the extra 1.5% goes toward closing costs and prepaids. This is a real loan. It carries interest and a monthly payment. It amortizes over 30 years, with a balloon due in year 10. The credit floor is 660, or 670 blended. It also pairs with FHA, USDA and HUD-184.
The refinance-cost second. It covers 1% to 3.5% of the balance toward the costs of an FHA refinance. It matters to owners, not buyers. It is mentioned here only so the picture is complete.
Can You Use Both?
Often yes, within the limits of the first loan. They are not the same kind of money. A seller credit is not an assistance program. The seller’s credit is governed by the loan’s cap and the actual costs. The assistance option is governed by its own rules.
One rule does not bend. Nothing stacks with another assistance program. A mortgage credit certificate is also not permitted with the second-lien options.
Stacking is also less useful than it sounds. The repayable second at 5% already reaches closing costs. That leaves less cost for a seller credit to absorb. Any credit above real costs gets trimmed. The lender confirms the combination against each program’s rules before the contract relies on it.
When Down Payment Assistance Is the Better Fit
Choose assistance when the shortfall is the down payment itself. A seller credit cannot fix that gap, because the seller’s money generally cannot count toward your required investment. On FHA, that minimum is 3.5% of the lesser of price or appraised value.
Assistance also fits when sellers are unlikely to agree to credits. You do not need the seller’s consent. The program funds the gap through the lender.
Within the assistance family, the shapes suit different buyers:
- Grant: the buyer who wants nothing to repay and fits the income test or a category. Education is part of the file.
- Forgivable second: the buyer who plans to stay in the home long enough to reach forgiveness. A sale or refinance before then can bring the lien due.
- Repayable second: the buyer who needs the largest assist, including closing costs, and can carry the added monthly payment.
The costs are real. The grant adds a course. The forgivable second sits as a lien on your home for years. The repayable second adds a payment and a balloon. Program funds can also run short, and a buyer should confirm funds are reserved before building a contract around them.
For FHA files, the government-entity rules matter. FHA guidelines set the documentation required when someone other than the buyer supplies part of the minimum investment. The lender handles that paperwork. Buyers need to know only that the source of the money decides what it can pay for.
When a Seller Credit Is the Better Fit
Choose a seller credit when you can cover the down payment but closing costs and prepaids strain your cash. A credit adds no debt. It carries no lien and no income test. It needs no course.
It also suits a buyer who does not meet a program’s credit floor. A seller credit has no floor of its own. The first loan sets the credit requirement.
The costs here are different. A credit has to be negotiated, and the seller may build it into the price. If the appraisal comes in short, the buyer is left with less cash than expected. On FHA, a credit above the cap or above actual costs also reduces the value used for the loan.
Negotiation cuts both ways. In a market with many offers, asking for credits can make an offer less attractive. In a slower market, sellers may agree more readily. A lower price and a credit can look alike on paper but work differently at closing. A price cut lowers the loan and the monthly payment. A credit lowers the cash you bring.
Mistakes That Derail Files
Three errors show up again and again:
1. Treating the seller’s money as a down payment. On FHA and conventional files, it cannot count toward your minimum.
2. Assuming the credit can exceed costs. Anything above actual eligible costs gets trimmed.
3. Assuming the options stack freely. Each program has its own rules, and the lender confirms the combination.
Another common problem is documentation. Assistance files need the application, the AUS finding and, for the grant, the homebuyer course. Missing items stall review.
Key Terms Defined
Seller credit: A seller’s contribution toward your closing costs, also called a seller concession.
Interested party contribution: Money from anyone with a stake in the sale, such as the seller or agent.
Minimum required investment: The smallest amount you must put in yourself. On FHA, it is 3.5% of the lesser of price or appraised value.
Second lien: A loan recorded behind your main mortgage. It must be paid or forgiven before the home is free of it.
Forgivable second: A second lien that is cancelled if you make on-time first-lien payments for the required period.
Balloon: A lump sum due at the end of a set term, before the loan is fully paid off.
First lien: Your main mortgage, such as the FHA, USDA or HUD-184 loan.
What FHA Looks Like Underneath
The assistance options sit on an FHA, USDA or HUD-184 first loan, and the FHA details shape the file. The minimum investment is 3.5%, so first-lien leverage tops out at 96.5%. An upfront mortgage insurance premium applies to the base loan, and it can be financed into the loan. Annual mortgage insurance also applies, and it varies by tier.
For 2026, one-unit FHA loan limits run from $541,287 to $1,249,125 by county. The repayable second may be paired with a high-balance first lien. The grant is not.
Property types also matter. The grant covers one-to-four-unit primary residences, FHA-approved condominiums and PUDs. The second-lien options cover single-family detached or attached homes, condominiums and PUDs. Escrow holdbacks on the second-lien options cover minor non-structural repairs up to $5,000, with 150% of the estimate escrowed and the work done within 90 days.
Every option is for an owner-occupied primary residence. A second home, a vacation home or a rental does not qualify.
Which One Do You Need?
| Your shortfall | Likely fit |
|---|---|
| Down payment only | Grant or second lien |
| Closing costs only | Seller credit |
| Both, with thin savings | Repayable second at the closing-cost tier |
| Both, and a seller willing to help | A second lien plus a credit, if the first loan’s rules allow |
| Meets neither income test nor credit floor | Seller credit, or a larger down payment |
Free counseling can help sort this out. The CFPB’s housing counselor tool lists HUD-approved agencies. Those counselors give independent advice, often at little or no cost, and can point buyers to state and local programs.
A Balanced Verdict
Neither option wins on its own. They solve different problems. Assistance builds the front end of the deal. A seller credit trims the back end. A buyer short on both may need both, with each program’s limits in view.
Assistance carries more commitments. A grant needs a course. A second lien needs a plan for resale, refinance or repayment. A seller credit carries fewer obligations but depends on the seller, the price and the appraisal.
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. Terms are subject to lender guidelines and full underwriting, and nothing here is a commitment to lend.
Frequently Asked Questions
Can a seller credit pay my down payment?
Generally no. On FHA, interested-party money cannot cover the minimum required investment. Fannie Mae’s conventional rules also bar seller money from the down payment and reserves. A seller credit pays closing costs and prepaids, within the cap.
Do I have to be a first-time buyer to get assistance?
No. Repeat and move-up buyers qualify for every option the network arranges. The grant’s first-time test is only one of several ways to qualify. The others are income at or below 140% of area median income, a qualifying category, or a home in an underserved census tract.
Is a down payment assistance second lien a loan?
Yes, with one exception: the grant has nothing to repay. The forgivable second carries no interest or payment and is forgiven after 36 or 60 on-time first-lien payments. The repayable second has interest, a monthly payment and a balloon due in year 10. It also has its own disclosure.
Can I get cash back if the credit is more than my costs?
No. A credit cannot exceed actual eligible costs. On FHA, the excess is an inducement and reduces the value used to set your loan. USDA treats contributions above its limit as a prohibited purpose.
Can I use assistance on a rental or second home?
No. Assistance is for an owner-occupied primary residence only. It is not available on a second home, a vacation home or an investment property.
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. USDA
2. Fannie Mae Selling Notice on interested party contributions
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 Affect Your Loan Cost by Program Type? · How Gifts and Down Payment Assistance Cover a Full Down Payment · How Down Payment Assistance Programs Price the Offset Into Your Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.