The Quick Read: Not directly. A builder can usually give you a limited credit toward closing costs, but on FHA and USDA loans that credit cannot be your down payment. Real down payment help has to come from a source with no stake in the sale, such as a grant or a second lien arranged next to your first mortgage.
What Can a Builder Actually Pay For?
A builder can pay closing costs and prepaid items, up to a cap and up to the actual cost. A builder cannot fund the cash you are required to put into the deal. Those are two separate buckets, and the loan file treats them differently.
Here is how the buckets sort out on a typical new construction purchase:
- Down payment (your minimum investment). On an FHA loan this is 3.5% of the lesser of price or appraised value. It has to be your own money or help from an eligible outside source.
- Closing costs. Title, lender-side charges, recording and similar items. A builder credit can land here.
- Prepaids. Interest, the first insurance premium and escrow deposits. A builder credit can land here too.
- Deposit. The earnest money you hand the builder when you sign. It is a payment toward the purchase. It does not turn builder money into your down payment.
The confusion starts with the word “incentive.” Builders advertise credits, design allowances and rate buydowns in the same breath. Each one is a concession from the seller. Only some of them can be spent on only some of the buckets.
The practical read: the builder’s money helps you at the closing table. Your down payment still needs a different source. That is where down payment assistance programs come in, and they work on new construction the same way they work on a resale, as long as the property and the first mortgage meet program guidelines.
One note on scope. Assistance is for an owner-occupied primary residence. A new build bought as a rental or second home does not fit these programs.
Five Routes, Side by Side
The cleanest way to see this is by who the money comes from and what it can touch.
| Route | Who funds it | What it can cover | Main catch |
|---|---|---|---|
| Builder credit | The builder | Closing costs, prepaids | Capped; not your down payment |
| Family gift | A relative or eligible donor | Down payment, costs | Signed gift letter required |
| Grant (nothing to repay) | An outside program | Minimum investment | Credit, income or category tests |
| Forgivable second lien | An outside program | Down payment | A lien until forgiven |
| Repayable second lien | An outside program | Down payment, some costs | A real loan with a balloon |
Notice the builder is on the first row only. Every row below it comes from a party with no interest in whether the house sells.
Why a Builder Credit Cannot Be Your Down Payment
The lender needs proof that you put in your own stake. Money from the seller is a price discount in disguise, and the rules treat it that way.
HUD’s FHA Handbook glossary lists builders and developers among the “interested parties” to a sale, alongside sellers and real estate agents. It defines the minimum required investment as your own cash or equivalent, at least 3.5% of the property’s adjusted value.
Interested-party contributions may not be used for that minimum investment. It also says contributions above 6%, or above the actual costs paid, are inducements to purchase. An inducement reduces the purchase price dollar for dollar before the loan-to-value is figured. The credit must be written in the sales contract and shown on the Closing Disclosure.
USDA runs the same logic. Its guaranteed loan handbook caps seller and interested-party contributions at 6% of the sales price and requires them to serve an eligible loan purpose. Its handbook chapter on assets says gift funds may not come from any source with an interest in the sale, including the seller, the builder or the real estate agent.
The principle behind all of it is simple. Seller-funded down payment help is not permitted. If the builder could hand you the down payment, the real price would be lower than the contract price, and the loan would be sized on a number that is not real.
Programs change, and the handbooks are updated from time to time. The lender’s file is the final word on the version in force.
Where Real Down Payment Help Comes From
Real help comes from a party with nothing riding on the sale. Across the wholesale programs Lendmire places files with, that help takes four shapes. All sit on a government-backed first mortgage, and all are for owner-occupied primary residences. Lendmire is the broker arranging them. The wholesale lenders review, underwrite and approve.
The grant. This option pays 2% or 3.5% of the purchase price toward the FHA minimum investment. There is nothing to repay. It is released at closing, with no lien, no payment and no interest. It pairs with FHA first mortgages only. The credit floor is 620. An HUD-approved homebuyer education course is required, and it is not offered in Washington.
The grant has an income test, with a way around it. Household income must be at or below 140% of the area median, unless you fall into a qualifying category. Those categories are:
- a first responder
- an educator
- medical personnel
- a civil servant
- military personnel
- a first-time buyer
- a buyer in an underserved census tract
The forgivable second. This is 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is fully forgiven after 36 or 60 on-time payments on the first mortgage, depending on the version. The credit floor is 640. It pairs with FHA, USDA and HUD-184 first mortgages on one- and two-unit homes. It carries no income limit beyond USDA’s own on a USDA first lien.
The repayable second. This is 3.5% or 5% of the lesser of price or appraised value. At 5%, the extra 1.5% goes toward closing costs and prepaids. It is a real loan. It carries interest and a monthly payment, amortizes over 30 years and has a balloon due in year 10. It has its own disclosures. The credit floor is 660, and manual underwriting is not allowed.
The refinance-cost second. This one covers closing costs on an FHA refinance. It is not a purchase tool, so it does not apply to a new build.
Two points matter for builder questions. First, nobody has to be a first-time buyer. Second, none of these options can be combined with another assistance program.
Nothing here is a dollar promise. Each option is a percentage of price or value. The size of your file depends on the contract price, the appraisal and the first mortgage. Every file is underwritten individually, subject to program guidelines.
What the Stack Looks Like on a New Build
Picture a buyer under contract on a new FHA-financed home. The builder offers a credit toward closing costs. The buyer has modest savings and meets the grant’s tests through a qualifying category.
The dollars sort like this:
1. First mortgage. An FHA loan at 96.5% of the lesser of price or value. The loan carries an upfront mortgage insurance premium, which can be financed, plus an annual premium by tier.
2. Minimum investment. The 3.5% balance is covered by the grant at 3.5% of the price. Nothing is repaid.
3. Closing costs and prepaids. The builder credit pays these, up to the actual costs and under the 6% cap.
4. Reconciliation. The lender checks that the builder credit does not exceed actual costs. If it does, the excess is treated as a price reduction.
Same buyer, different tools. If the buyer does not meet the grant’s tests, a forgivable or repayable second can fill the 3.5%. At the 5% repayable level, the second also reaches closing costs and prepaids, so the builder credit may carry less of the load. Each of these is its own structure with its own disclosure, and the lender reviews the combination.
The stacking order is the point. The builder credit stays on the cost side. The assistance stays on the investment side. Mixing them is how files get kicked back.
The Traps on Builder Files
Excess credit gets resized. On FHA, the part of a credit above 6% or above actual costs reduces the price used for loan-to-value. That can mean more cash from you. USDA says excess seller contributions can go toward principal reduction or back to the seller. They cannot be paid to you as cash. So a bigger headline credit is not a bigger check to you.
The credit may depend on the builder’s lender. Many builders tie their best offers to an affiliated lender. That is a contract question, not a rule question. Read the purchase agreement. Check whether the credit survives if you switch lenders, and compare the full cost of both loan estimates. Getting a quote from outside the builder’s lender costs you nothing and shows you what the credit is really worth.
Price can absorb the credit. A builder paying a large credit may have priced it into the home. A smaller credit on a lower price can leave you ahead. Compare the offers on total cost, not on the size of the credit.
Appraisal matters twice. Assistance on the second-lien options is a percentage of the lesser of price or appraised value. A low appraisal shrinks the assistance and can raise your cash need. Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment walks through that effect on larger loans.
Deposit is not down payment. The deposit you pay the builder at signing is part of the purchase. It is not a separate source of funds. The lender will want to see where your deposit came from, and the paper trail has to be clean. USDA also says lenders may not accept verifications passed through an interested party such as a builder.
A soft second is still debt. FHA Connection says secondary financing is not a gift, even when it is “soft” or “silent.” A forgivable second is a lien on your home until it is forgiven, and the lender counts it. Plan for that if you sell or refinance before the forgiveness period ends.
USDA single-close loans are an exception. The 6% limit on seller contributions does not apply to USDA construction-to-permanent loans that close once. That is a narrow structure, and the lender has to confirm it fits.
Seller-paid commissions are a separate line. On USDA, a seller-paid buyer-side commission does not count toward the 6% limit. Ask your lender how the commission is treated on your loan.
How to Ask for It
Timing matters on a new build. The contract often sets the credit before anyone has run the full file.
1. Before you sign. Get a pre-approval and ask which assistance shape fits your file. Do it before the builder’s offer ties you to anything.
2. At contract. Put every builder credit in the purchase agreement in writing. Include what it can pay for and whether it requires a particular lender.
3. Before the appraisal. Confirm which assistance option you plan to use. The appraisal sets the base for the second-lien amounts and for loan-to-value.
4. Before closing. Finish homebuyer education if you use the grant. Review the Loan Estimate and Closing Disclosure line by line, including any separate disclosure for a repayable second.
Questions for the sales office:
- What can the credit pay for, in writing?
- Does the credit change if I use another lender?
- Is there a lower price without the credit?
Questions for the loan officer:
- Which assistance shape fits my credit and income?
- How does the builder credit sit next to it?
- What is the total cash I bring if the appraisal comes in short?
Who This Fits
This fits the buyer with steady income and thin savings. It fits the renter buying a first home and the owner moving up. It also fits public-service workers, since several qualifying categories on the grant are built for them.
It fits less well if you want to buy as an investment or a second home. It also fits less well if your credit score falls below the floor for the option you want, or if you already plan to use another assistance program. The options do not combine.
Key Terms Defined
Interested party: Anyone with a stake in the sale, including the seller, builder, developer and real estate agent.
Minimum required investment: The cash or eligible funds you must put into an FHA purchase, set at 3.5% of the lesser of price or appraised value.
Seller concession: A credit from the builder toward your costs, limited by a cap and by actual costs.
Inducement to purchase: A seller contribution above the cap or above actual costs, which the lender subtracts from the price.
Second lien: A separate loan secured by your home behind the first mortgage.
Forgivable second: A second lien with no interest or payment that is forgiven after a set number of on-time first-mortgage payments.
Balloon: A lump sum due at the end of a loan term, such as year 10 on the repayable second.
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. Approval and terms are subject to program guidelines and full underwriting by the wholesale lender. This is not a commitment to lend.
Frequently Asked Questions
Can the builder pay my 3.5% down on an FHA loan?
No. Interested-party contributions cannot be used for the FHA minimum required investment. The builder’s credit can go toward closing costs and prepaids. Your 3.5% has to come from your own funds or an eligible source with no stake in the sale. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Can I use a builder credit and a down payment assistance option together?
Often yes, when each one sits on its own side of the ledger. The builder credit covers eligible closing costs and prepaids. The assistance covers the minimum investment. The lender reviews the combined structure, and the options do not combine with another assistance program.
Does my builder deposit count as the down payment?
It counts toward the purchase, but it does not change where your required investment must come from. The lender will source the deposit and confirm that it is your own money or an eligible source. Builder money cannot be recycled into it.
What happens if the builder credit is bigger than my closing costs?
The excess does not go to you as cash. On FHA, the part over the cap or over actual costs reduces the price used for loan-to-value. On USDA, it can go to principal reduction or back to the seller. Ask for a credit sized to your real costs.
Do I have to be a first-time buyer to get assistance on a new build?
No. None of the options requires you to be a first-time buyer, so repeat and move-up buyers can qualify. 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 household income within 140% of the area median unless a qualifying category applies. The second-lien options have no income limit beyond USDA’s own on a USDA first lien. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, USDA and HUD-184 home purchase financing with grant-style, forgivable and repayable down payment assistance options in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. USDA
2. HUD Handbook 4000.1 Glossary
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get Down Payment Assistance While Still Owning a Home? · Does Down Payment Assistance Have to Be Paid Back? · Can a Six-Figure Earner With Student Loans Get Down Payment Assistance?
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.