The Quick Read: Usually not the builder. On an FHA or USDA purchase, the down payment has to come from your own savings, a permitted gift donor, or a qualifying assistance program. Builder money can help with certain closing costs, but it generally cannot cover your minimum investment. The money has to be traceable to a source with no stake in the sale.
Who Can Fund It: The Funder-by-Funder Answer
The funder matters less than where the money came from. A new home is the one purchase where the seller is also the builder, so lenders look hard at whose dollars land in your down payment.
| Funder | Can it fund the down payment? | The catch |
|---|---|---|
| You (savings) | Yes | Cash at home doesn’t count; funds need a paper trail |
| Family member | Yes, as a gift | Gift letter and proof of transfer |
| Employer or union | Yes, as a gift | Same documentation as family |
| Charity (501(c)(3)) | Yes, as a gift | Lender verifies charitable status |
| Government entity | Yes, grant or second lien | Authority paperwork required |
| Assistance program (grant or second) | Yes | Program rules apply on top of the first mortgage |
| Builder or builder’s affiliates | No, not for the minimum investment | Limited to certain closing costs |
Two rows deserve a closer look: the assistance programs and the builder. They are the ones buyers ask about most.
Why the Builder Can’t Be the Source
The builder profits from the sale, so builder money is an “interested party” contribution. Federal rules treat that differently from a gift. The HUD final rule on prohibited FHA down payment sources bars funds paid wholly or partly by the seller, or by anyone who financially benefits from the transaction. It also bars a third party that the seller reimburses, directly or indirectly. HUD’s stated worry was that sale prices get raised so the seller’s net proceeds aren’t reduced.
Here is the practical version:
- Builder credits can usually help with closing costs and prepaid items. There is a ceiling, and it varies by loan program.
- Credits beyond that ceiling are treated as an inducement to purchase. The lender can reduce the value it uses for the loan, which shrinks what you can borrow.
- A charity the builder reimburses is still builder money. The structure doesn’t clean it.
- The builder’s affiliated lender or title company counts as builder-sourced for these purposes too.
USDA guidance points the same way. USDA’s loan origination FAQ allows down payment assistance as long as the guaranteed loan stays in first lien position. USDA handbook guidance also says gift funds can’t come from the seller, builder or real estate agent.
Picture a buyer who loves a model home. The sales office offers a “gift” from a charity the builder works with. That arrangement is the exact pattern the rules target, so ask the lender before signing, not after.
What Counts as “New Construction” Here
The label covers three different situations, and the funding path can differ for each.
- A completed or nearly finished home bought from a builder. This behaves like any purchase with a builder as the seller. The assistance structures below are built around this kind of purchase mortgage.
- A home that isn’t built yet, bought under contract. The same funding rules apply, but the timeline stretches, so your paperwork and program reservations need to survive the build.
- A construction loan or custom build. This is a different product. Many assistance options pair with a standard purchase first mortgage, not a construction loan, so ask directly before assuming either way.
A lender can tell you which of these your file is. Ask early, because a late surprise on the funding source can leave you hunting for cash.
Four Shapes of Assistance (From a Broker’s Desk)
Across the wholesale programs Lendmire places consumer files with, assistance comes in four shapes. All pair with a government first lien, and all are subject to program guidelines and full underwriting. These are arranged through wholesale lenders. Lendmire is the broker, not the lender.
The grant: nothing to repay. The assistance is 2% or 3.5% of the purchase price, applied toward the FHA minimum required investment. It’s released at closing, with no lien, no payment and no interest. The credit floor is 620. It pairs with an FHA first lien at 96.5% loan-to-value on one to four units. An HUD-approved homebuyer education course is required. Eligibility is household income at or below 140% of area median income, or a qualifying category (more on that below). It isn’t offered in Washington.
The forgivable second lien. The assistance is 3.5% of the lesser of price or appraised value. There’s no interest and no monthly payment. It’s forgiven after the first 36 or 60 on-time payments on the first mortgage, depending on the version. The credit floor is 640. It pairs with FHA, HUD-184 or USDA first liens on one to two units.
The repayable second lien. At 5%, it also covers closing costs and prepaid items. Call it what it is: a real second loan. It carries interest and a monthly payment, with 30-year amortization and a balloon due in year 10. It comes with its own disclosures. The credit floor is 660. It pairs with FHA, HUD-184 or USDA first liens.
The refinance-cost second lien. This one is for an FHA refinance, not a purchase. It’s 1% to 3.5% of the balance toward closing costs, with combined leverage up to 104%. It’s mentioned here for completeness. It doesn’t help with new construction. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Is the second lien worth it? That’s a genuine tradeoff. The forgivable version costs you nothing monthly. The repayable version adds a payment and a balloon, so it can strain a tight budget. The grant avoids both, but it comes with the income test or a qualifying category and an education course.
Assistance is always a percentage of price or value. The percentages above are program structures, not a dollar amount any particular buyer will receive. If you want a deeper look at what a low appraisal does to the numbers on a larger new build, Lendmire’s piece How a Low Appraisal Resizes a New Construction Jumbo Loan Down Payment walks through the logic. The “lesser of price or value” wording matters in the same way here. If you want the full menu, see Lendmire’s down payment assistance programs.
Do You Have to Be a First-Time Buyer?
No. No option in the network requires it. Repeat and move-up buyers qualify.
The grant’s income test is the one with a ceiling: 140% of area median income. You can skip the income test if you fall into a qualifying category:
- a first responder, current, former or entering service
- an educator
- medical personnel
- a civil servant at the federal, state or local level
- military personnel, current, retired or volunteer
- a first-time buyer (no ownership in the prior three years)
- a buyer in an underserved census tract
The forgivable and repayable seconds carry no income limit, other than USDA’s own limits if USDA is the first lien.
Every option is for an owner-occupied primary residence only. A second home or rental doesn’t qualify. Nothing stacks with another assistance program either, and a mortgage credit certificate isn’t allowed with the second liens.
When the Money Comes From a Government Entity or Charity
If your help comes from a public agency or a nonprofit, the lender has paperwork to collect. The two get different treatment.
A government entity has to show it’s acting in a governmental capacity. A 2019 HUD mortgagee letter lays out the documentation. That includes proof of authority from the jurisdiction and a letter from an authorized official. In certain cases it also includes a legal opinion dated within two years of closing. HUD doesn’t keep a list of government providers. The lender has to verify each one.
A charity gets a different check. FHA doesn’t “approve” charity-run programs, so the lender confirms the provider is a 501(c)(3). Gift money from a nonprofit also can’t be used to pay off things like installment loans, credit cards or collections.
Many state and local housing agencies run their own programs, and those rules vary a lot. The Iowa Finance Authority is one public example. It pairs a grant with a repayable second, and the second comes due when you sell, refinance or pay off the first mortgage. Many public programs also cap what they’ll provide and add their own recapture terms. Check each one’s rules, since they differ from the structures above.
Family Gifts and Gift Letters
A gift from a family member, employer or union is a common way to fill the gap. So is a close friend with a clearly documented interest in you. What the file needs:
- a gift letter naming the donor, the relationship and the amount
- a statement that no repayment is required
- a statement that the funds didn’t come from anyone with an interest in the sale
- evidence of the transfer
Whether a gift can sit beside an assistance option is a file-level question for your lender. Raise it before you commit to either.
Cash on hand doesn’t count. If it’s been in a drawer, it needs a documented path into an account first.
Tribal Buyers and HUD-184
If you’re using an HUD-184 loan, one point trips people up. The program guarantees loans, but it doesn’t itself provide down payment assistance. Approved lenders originate the loans, and HUD’s Section 184 handbook notes the loans can be used to construct new homes.
A tribe or its housing entity may offer help from its own funds, and the source matters. A tribe’s own money is treated differently from certain federal housing funds. The forgivable and repayable seconds can also pair with an HUD-184 first lien.
The Funds-Flow Timeline
Where does each dollar land? In rough order:
1. Contract. You sign with the builder. Any builder incentive goes in writing, and the lender reviews it.
2. Deposit. Your earnest money or builder deposit is paid from your own funds. It isn’t the same as the down payment, though it may count toward it.
3. Program setup. The lender checks which assistance option fits and confirms your credit and eligibility. Grant buyers complete the education course.
4. Underwriting. The lender verifies the source of every dollar and the transfer trail. A repayable second adds a payment to your debt picture. A grant or forgivable second doesn’t.
5. Closing. The settlement statement must show every dollar. Side deals that aren’t disclosed are a red flag. Conventional lending guidelines also treat undisclosed contributions and silent seconds as problems. That’s a conventional rule, not an FHA rule, but the instinct is sound.
On a home that isn’t finished, your approval and any program reservation have to hold through the build. Ask your lender how that’s handled.
FHA Facts the Assistance Sits On
Most of these options sit on an FHA first mortgage, so the FHA basics apply:
- The minimum required investment is 3.5% of the lesser of price or appraised value, for a representative score of 580 or higher.
- The first lien runs to 96.5% loan-to-value.
- There’s an upfront mortgage insurance premium, which can be financed into the loan, plus annual mortgage insurance.
- Current one-unit FHA loan limits vary by county.
If the new build prices above your county’s limit, the grant won’t fit, since it pairs only with a non-high-balance FHA first lien. The repayable second does allow high-balance first liens. Programs change, and each file is underwritten individually.
Common Mistakes
- Counting the builder’s “gift” as your down payment. It’s a seller concession, a different category.
- Confusing the deposit with the down payment. They’re separate pieces of the timeline.
- Assuming HUD approves assistance programs. For charity programs, it doesn’t. The lender verifies.
- Assuming a Section 184 loan comes with assistance. It doesn’t by itself.
- Waiting on gift paperwork. A rejected source late in the process can force you to find cash or restructure.
- Treating a repayable second as a grant. It’s a loan with a balloon.
Key Terms Defined
Interested party: Anyone who profits from the sale, such as the builder, seller or agent.
Minimum required investment: The share of the price you must put in from your own or permitted funds. On FHA that’s 3.5%.
Gift letter: A signed statement naming the donor and the amount, confirming no repayment is due.
Forgivable second lien: A second loan with no interest or payment that is wiped out after enough on-time payments on the first mortgage.
Balloon: A lump-sum balance due at a set point, which is year 10 on the repayable second.
Area median income: The midpoint household income for your area, used for the grant’s income test.
Your 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. Bring your contract and any builder incentive in writing, so the funding sources can be sorted out early.
Frequently Asked Questions
Can a builder pay my down payment?
Not for the minimum investment on FHA or USDA. Builder money is an interested-party contribution and is generally limited to certain closing costs, prepaid items and points. Anything beyond the allowed amount can reduce the value the lender uses for your loan.
Does down payment assistance work on a home that isn’t built yet?
It can, but the timeline matters. The structures above attach to a purchase mortgage, and your approval has to hold through the build. A separate construction loan is a different product, so ask your lender which path your contract follows.
Can I use builder credits and assistance together?
Builder credits for permitted closing costs are a different matter from a second assistance program. Assistance options can’t be combined with another assistance program. How a builder credit interacts with a specific option is a file-level review, subject to lender guidelines.
Do I have to be a first-time buyer?
No. Repeat buyers qualify for every option in the network. The grant adds an income test of 140% of area median income, unless you are a first responder, educator, medical worker, civil servant, military member, first-time buyer or buying in an underserved census tract.
Is the assistance a gift or a loan?
It depends on the option. The grant has nothing to repay. The forgivable second is a loan that’s forgiven after 36 or 60 on-time first-lien payments. The repayable second is a real loan with a monthly payment and a balloon due in year 10. Eligibility is subject to lender guidelines and full underwriting, and this isn’t a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving home buyers in 16 states. Down payment assistance programs are arranged with FHA, USDA and HUD-184 first liens through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD / Federal Register final rule on prohibited sources of FHA down payment
2. USDA Rural Development loan origination FAQ
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.