The Quick Read: A gift suits you if family can hand over money with no strings. Assistance suits you if they can’t, or if their help falls short. A gift is cash from a person, and nothing is repaid. Assistance comes from a program, and it can be a grant, a forgivable loan, or a loan you pay back. One caveat on the title: the assistance options Lendmire arranges pair with FHA, USDA and HUD-184 first mortgages, not conventional ones. A gift can work with any of them.
Side-by-Side
Here is how the choices stack up. “Assistance” has three shapes in the programs Lendmire places files with through wholesale lenders, so the table splits them. Everything below is subject to program guidelines and full underwriting.
| Factor | Grant | Second lien | Family gift |
|---|---|---|---|
| Repayment | Nothing to repay | Forgivable, or repaid with a year-10 balloon | None expected |
| Credit floor | 620 | 640 forgivable; 660 repayable | Set by the first mortgage |
| Income test | 140% of area median, or a category | None beyond USDA’s on a USDA loan | None |
| First-lien pairing | FHA only | FHA, USDA, HUD-184 | Depends on the first loan |
| Counseling | Homebuyer course required | Not required by the program | None |
| Lien on your home | No | Yes, a second lien | No |
Two rows deserve a closer look. The grant’s income test has a way around it: a first responder, educator, medical worker, civil servant, service member, first-time buyer, or a buyer in an underserved census tract can qualify without meeting the 140% line. The second-lien options have no income cap of their own.
If you want the full menu, Lendmire lays out its down payment assistance programs in one place.
What Each Option Really Is
A gift is personal. Someone who cares about you hands over money and expects nothing back. The lender cares about two things: who the donor is and whether the paper trail is clean.
Assistance is institutional. A program sets the terms, and the terms matter more than the headline.
- The grant covers 2% or 3.5% of the purchase price toward the FHA minimum. It is released at closing. There is no lien, no payment and no interest.
- The forgivable second is 3.5% of the lesser of price or appraised value. It carries no interest and no payment. It is forgiven after 36 or 60 on-time payments on your first mortgage.
- The repayable second is 3.5% or 5% of the lesser of price or value. At 5%, it also covers closing costs and prepaid items. It is a real loan with interest and a monthly payment. It amortizes over 30 years and comes due in a balloon in year 10.
That last one is not a freebie. It adds a payment to your budget and a balloon to plan around.
Nobody in these programs has to be a first-time buyer. A repeat buyer moving up qualifies, though it must be a primary residence.
Key Terms Defined
Second lien: A loan recorded behind your main mortgage. If the home is sold, the first loan gets paid first.
Gift letter: A signed statement from the donor saying the money is a gift and no repayment is expected.
Gift of equity: A credit from a family-member seller, who knocks value off the price instead of handing over cash.
Interested party: Anyone with a stake in the sale, such as the seller, builder or agent. They generally can’t be your gift donor.
When Down Payment Assistance Is the Better Fit
Assistance wins when the people around you can’t write the check. It also wins when the gap is bigger than their check.
Nobody in your circle can give. A gift needs a donor. If you rent, your savings are thin and your family is stretched, there is no donor to document. A program is the only outside source left.
You want money that stays out of the family. A gift can strain relationships, even a clean one. A grant has no donor to disappoint and no repayment to discuss at the holiday table.
Your family can cover only part of the gap. Partial help is common. Whether a family gift can sit on top of an assistance option depends on the lender’s review of your file. Ask before anyone moves a dollar. Nothing stacks with a second assistance program, so program-on-program combinations are off the table.
You need closing costs covered too. The repayable second at 5% adds 1.5% toward closing costs on top of the 3.5% minimum. That matters if your cash gap includes more than the down payment.
You are a public-service worker. If you are a first responder, educator, medical worker, civil servant or service member, the grant’s income test may not apply to you at all.
Here is the cost side, stated plainly. The grant requires an HUD-approved homebuyer education course. You pay for it up front and the cost is credited back at closing. The forgivable second asks you to make 36 or 60 on-time first-mortgage payments, and a 90-day-or-longer delinquency breaks that. The repayable second has a monthly payment that counts when the lender qualifies you.
These options sit on a government first mortgage. On FHA, the minimum investment is set as a percentage of the lesser of price or appraised value, and first-lien leverage is capped accordingly. The upfront mortgage insurance premium is a percentage of the base loan and can be financed. Annual mortgage insurance applies by tier. Assistance lowers your cash need, not these costs. The FHA 2026 one-unit loan limits vary by county.
When a Gift Is the Better Fit
A gift wins when you have a willing, eligible donor and you want the simplest structure.
Your donor can cover the whole gap. No lien, no payment, no program rules. On an FHA purchase, the HUD handbook glossary defines the minimum required investment as at least 3.5% of the property’s adjusted value. A gift can fund that, as long as it clears the source requirements.
You want to keep your monthly budget clean. A gift adds nothing to your monthly obligation. A second lien can.
Your income is above a program’s limit. The grant’s 140% area-median-income test is real. If your household is over it and no category applies, a gift avoids the problem. A second lien has no income cap of its own, so this point favors a gift mostly when the grant was your target.
You are buying with a conventional first mortgage. This is the title’s buyer. The assistance options Lendmire arranges don’t pair with conventional loans. If you want a conventional loan, a gift is the realistic path. Conventional guidelines generally allow personal gifts to fund all or part of the down payment, closing costs or reserves on a principal residence, subject to minimum-contribution rules. A gift of equity can’t be used for reserves.
What a gift needs
A gift is only a gift if it is documented like one.
- An acceptable donor. On a conventional loan, that means relatives, or non-relatives with a familial relationship to you. The donor can’t be the builder, developer, agent or another interested party.
- A gift letter. HUD’s FHA guidance says it must be signed and dated by donor and borrower. It lists the donor’s name, address, phone number, relationship to you, the amount, and a statement that no repayment is required.
- A traceable transfer. Lenders want to see where the money came from and where it landed. A surprise cash deposit is a problem.
- A gift of equity from family only. On FHA, a gift of equity is allowed only between family members, on a property sold to another family member.
A loan from a relative is not a gift. If you will owe the money back, it is debt. Say so honestly to your loan officer. Calling a loan a gift is the fastest way to a pulled approval.
Gifts also don’t pad your reserves in every program. On USDA, gift funds from any source are excluded from the cash-reserves calculation, per USDA’s Handbook 1-3555, Chapter 5.
The Conventional Question
Since the title says “conventional,” a straight answer is owed. Conventional loans have their own version of assistance, called Community Seconds. It applies to principal residences only. These come from local affordable-housing programs, and availability varies by area.
The options Lendmire arranges work differently. They pair with FHA, USDA or HUD-184 first mortgages. So a cash-short buyer who wants conventional has a clear choice. Use a family gift, or switch the first mortgage to a government loan so assistance becomes available. Neither is wrong. They just trade off different things.
Here is a way to think about it, with no dollar figures. Picture three buyers with the same cash gap, a sliver of the price. Buyer one has parents who can cover all of it. A gift on a conventional loan keeps the structure simple. Buyer two has no family help and a credit score in the mid-600s. A repayable second on an FHA loan may fit, if the buyer can carry the extra payment. Buyer three is a nurse with household income above the 140% line. The grant’s category route may still apply, because the nurse is medical personnel.
The point: the better option depends on who is around you, not on which sounds nicer.
Can You Use Both?
Possibly. It depends on the lender, the first mortgage and the program. Nothing stacks with another assistance program, and a family gift is a different kind of money. Lendmire’s piece on FHA assistance versus gift funds goes deeper on that overlap.
Practically: tell your loan officer about every source of money at the start. Don’t move funds first and explain later. A gift that lands in your account before the lender has reviewed it can create more paperwork than it saves.
One more point. Assistance is for an owner-occupied primary residence. It isn’t for a second home or a rental.
A Balanced Verdict
Neither option wins on every file.
A gift is the cleaner tool. It has no lien, no payment and no program rules. It needs an acceptable donor and honest paperwork. If you have one, use it.
Assistance is the broader tool. It reaches buyers who have no donor, and it can cover more than the down payment. It adds program rules, and the repayable version adds a loan.
If you are on the fence, ask three questions. Can someone eligible cover the gap? Can you carry a second payment if needed? Do you want a conventional first mortgage, or is a government loan fine? The answers usually point one way.
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. Programs change, and every file is underwritten individually. This is not a commitment to lend.
Frequently Asked Questions
Can my parents give me a gift and also use a grant?
It depends on the lender and the program. Family money isn’t an assistance program, but the lender must review how both sources fit into your file. Nothing combines with a second assistance program. Raise it with your loan officer before any money moves.
Does a second lien show up in my monthly budget?
It depends on the shape. The forgivable second carries no interest and no payment. The repayable second has a monthly payment, and lenders count it when they qualify you. The grant has no lien and no payment.
Does a gift lower my credit score requirement?
No. A gift doesn’t change the credit rules of your first mortgage. The assistance options have their own higher floors, so a gift can sometimes be the easier route for a borrower below them. The first mortgage’s own requirements still apply.
Do I have to be a first-time buyer?
No. None of the options Lendmire arranges requires it. Repeat and move-up buyers qualify. The first-time-buyer definition is only one of several categories that can satisfy the grant’s income test.
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 FHA 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 a Gift From Parents Stack With Down Payment Assistance? · Can a Cash-Strapped Renter Trust Down Payment Assistance? · Can a Move-Up Buyer Who Still Owns a Home Get Down Payment Assistance?
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.