The Quick Read: A gift from family can cover part or all of your required down payment, but only when the loan program allows it and the paperwork proves where the money came from. On an FHA loan, the minimum is 3.5% of the lesser of the price or the appraised value, and an acceptable gift counts toward it. USDA sets no minimum at all. Assistance that arrives as a grant or a second loan follows its own rules, and that is where most buyers get tangled.
The Short Version
- The first mortgage sets your minimum contribution. The assistance or the gift only helps you meet it.
- A gift counts when the donor is acceptable, no repayment is expected, and the money trail is clean.
- Assistance comes in four shapes. A grant has nothing to repay, and the other three are loans with different terms.
- You do not have to be a first-time buyer.
- Everything here is for a home you will live in. Second homes and rentals are out.
What Counts as a Minimum Contribution
A minimum contribution is the share of the purchase that must come from you, not from the loan. The first-lien program sets that number. Gift money and assistance only fill it.
Each program sets it differently:
| Program | Your minimum stake | Gifts allowed? |
|---|---|---|
| FHA | 3.5% of lesser of price or value | Yes, from acceptable donors |
| USDA | None | Yes, from uninterested third parties |
| HUD-184 | Set as a percentage of value or cost | Yes, with documentation |
FHA is where most buyers feel the rule. The loan runs up to 96.5% of the lesser of price or value, so the other 3.5% has to come from somewhere. Buyers also pay an upfront mortgage insurance premium, and it can be financed into the loan. Annual mortgage insurance is added on top, scaled by loan size and leverage.
USDA is the opposite. A buyer who qualifies can finance the full purchase. Closing costs still exist, though, and any money you do bring has to be documented.
HUD-184 loans are built for eligible Native American borrowers. That program has its own minimum investment, and it adds borrower-paid costs on top of it. The loan guarantee itself does not provide assistance or grants. Help comes from other sources, such as a tribe or a state housing agency.
Many buyers meet these minimums with help. Lendmire is a mortgage broker, and it arranges down payment assistance programs through wholesale lenders alongside FHA, USDA and HUD-184 first mortgages, subject to program guidelines and full underwriting.
How the Two Layers Get Underwritten, Step by Step
Think of the file as two layers. The first mortgage is the foundation. The gift or assistance sits on top. A lender reviews both, and each has its own test.
Step 1: The first lien sets the minimum. HUD’s older FHA guidance states the standard as 3.5% of the lesser of the appraised value or sales price. The handbook has since been reformatted. Lenders apply the current version, so expect the same concept in newer wording.
Step 2: You pick the money source. Your own savings, an acceptable gift, an assistance program, or a mix. Each source gets tested separately.
Step 3: The lender tests the gift. The donor must be acceptable. The gift must carry no repayment expectation. HUD’s FHA FAQ on gifts lists what the gift letter has to contain:
1. The donor’s name, address and phone number.
2. The donor’s relationship to you.
3. The dollar amount.
4. A statement that no repayment is required.
5. Signatures from both the donor and you.
The same FAQ adds that a gift toward the minimum must also meet the handbook’s source rules. A letter alone is not enough.
Step 4: The lender traces the money. Expect to show the donor’s withdrawal and your deposit, or an electronic transfer record. If the gift is paid at settlement, it typically moves by electronic transfer to the settlement agent or by official bank check. A line on the closing paperwork does not prove a gift by itself. The lender has to reasonably conclude the money did not come from an unacceptable source.
Step 5: The lender tests the assistance. A grant adds no payment. A forgivable second adds a lien but no monthly payment. A repayable second adds a real payment, and that payment goes into the qualifying math. The assistance options follow the automated underwriting finding, so the first mortgage has to be approved first.
Step 6: The file closes with a clean trail. Missing or late gift paperwork is a common reason files stall. Recent deposits you cannot explain are the usual trigger.
The Four Assistance Shapes
Assistance is a percentage of the price or value, never a fixed dollar promise. Across the wholesale programs Lendmire places files with, it comes in four shapes. Each pairs with a government first mortgage, subject to program guidelines.
| Shape | Size | Repay? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of price or value | Forgiven over time | 640 |
| Repayable second | 3.5% or 5% | Yes, a real loan | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, a real loan | 660 |
The grant. It goes toward your FHA minimum investment. It is released at closing, with no lien, no payment and no interest. It pairs with FHA first liens at 96.5% leverage on one-to-four-unit homes. An HUD-approved homebuyer education course is required, and you pay for it up front and the cost is credited back at closing. The grant is not offered in Washington. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The income test is 140% of the area median income. It gets waived if you fit a qualifying category: a first responder, an educator, medical personnel, a civil servant, military personnel, a first-time buyer, or a buyer in an underserved census tract.
The forgivable second. It equals 3.5% of the lesser of price or value. It carries no interest and no monthly payment. It is forgiven after 36 or 60 on-time first-mortgage payments, depending on the version. It pairs with FHA, HUD-184 and USDA first liens on one-to-two-unit homes. The credit floor is 640, or 660 when a co-borrower’s score is blended in.
The repayable second. This is a real loan. It is interest-bearing, with a monthly payment, a 30-year amortization and a balloon due in year 10. At 5%, it covers the 3.5% minimum plus 1.5% toward closing costs and prepaid items. It has its own disclosure and its own balloon disclosure. Manual underwriting is not allowed on this one.
The refinance-cost second. It covers closing costs on an FHA refinance, up to 104% combined leverage. It is not for a streamline refinance or for paying off an existing assistance loan.
Nobody has to be a first-time buyer. A renter buying a first home qualifies. So does a repeat buyer moving up. The second-lien options carry no income limit beyond USDA’s own on a USDA first lien. Only the grant has an income test, set at 140% of area median unless a category applies.
Where Gift Funds and Assistance Meet
Run the numbers in percentages. Say you buy at a given price with an FHA first mortgage at 96.5% leverage. Your minimum stake is 3.5%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Scenario one: grant at 3.5%. The grant covers the whole minimum. Closing costs are separate, and a family gift can help there if the lender accepts it.
Scenario two: grant at 2%. The grant covers 2% of the 3.5%. That leaves 1.5% to come from your savings or an acceptable gift. The gift letter and money trail apply to that 1.5%.
Scenario three: repayable second at 5%. The second covers 3.5% plus 1.5% toward closing costs. You may not need a gift at all. You do carry a new monthly payment and a balloon in year 10, so the real question is whether you can qualify and live with that.
Scenario four: gift only. A parent gives the full 3.5%. On FHA, an acceptable donor with a documented trail can fund the minimum. No program assistance is involved.
Here is the catch for combining them. Program assistance cannot stack with another assistance program, and a mortgage credit certificate is not allowed with the second liens. A family gift is a different thing from a program, and it can often sit alongside assistance. The lender confirms the combination against the program guidelines before you count on it.
Where Does the General Rule Break?
The rule is simple: the first lien sets the minimum, and sources get tested. These edge cases bend it.
Seller, builder and agent money. People with a stake in the sale cannot give you a gift. USDA’s handbook states this plainly for its program, and FHA applies the same idea to money used for the minimum investment. A seller credit is a concession, not a gift. Treat the two as separate buckets.
Cash at home. “Cash on hand” is not an acceptable explanation for where money came from. The USDA document says so directly. Cash gets into your bank account, stays there, and gets sourced. Not ideal to wait until the week before closing.
Gift of equity. A seller who is family can sometimes give part of the home’s value as a gift of equity. On FHA, only family members can do this. On USDA, the handbook treats it as a price reduction, and no cash back is allowed on it. The same chapter says unverified funds are not acceptable.
USDA reserves. Gift funds on a USDA loan do not count toward reserves in the automated system. Assistance funds also do not count as your own funds for USDA’s credit test.
Older nonprofit-second rules. Archived HUD reference guidance says nonprofit seconds from agencies that are not government instrumentalities cannot fund any portion of the FHA minimum investment. That is older guidance, and lenders apply current rules. It explains why a lender looks hard at who is behind any assistance.
Refinancing later. A USDA assistance second has to be subordinated or paid off when you refinance. It cannot just be rolled into the new guaranteed loan. Forgivable and repayable seconds can also come due on a sale or refinance, or if you move out before the forgiveness period ends.
HUD-184 total cash. Besides the minimum investment, a Section 184 buyer needs cash for borrower-paid closing costs and the upfront guarantee fee when it is not financed. Budget for more than the minimum.
Wrong occupancy. Assistance never applies to second homes, vacation homes or rentals. These options are for your primary residence only.
What the Decision Looks Like in Practice
Pick your starting point by your situation, not by the program names.
Thin savings, steady income. Start with the grant at 3.5% if you fit the income test or a category. It adds no payment and no lien.
Public-service worker. A first responder, educator, nurse or civil servant can often use the grant even with income above the line of 140% of area median. The category waives the test.
Family wants to help. Ask your donor to move the money early, in the open, with a signed letter. Their bank statement matters as much as yours.
Moving up from a current home. You still qualify. The three-year first-time definition is only one of the grant’s qualifying categories.
Buying with USDA. You may not need a minimum at all. A forgivable or repayable second can still help with closing costs.
Need help with closing costs. The repayable second at 5% builds in 1.5% toward closing costs and prepaids. Weigh the balloon in year 10 first.
Key Terms Defined
Minimum required investment: The share of the purchase that has to come from you, set by the first-lien program. On FHA it is 3.5% of the lesser of price or appraised value.
Gift letter: A signed statement that money is a gift with no repayment expected. It names the donor, their relationship to you and the amount.
Soft second: A second loan with no monthly payment that is forgiven over time if you stay current on the first mortgage.
Balloon payment: The remaining balance on a loan that comes due all at once. On the repayable second, it falls in year 10.
Gift of equity: A discount on the home’s price from a family seller, treated as part of your stake.
Interested party: Anyone with a financial stake in the sale, such as a seller, builder or agent. These parties cannot provide a gift.
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. Lendmire is a mortgage broker arranging consumer loans in 16 states through wholesale lenders, subject to program guidelines and full underwriting. This is not a commitment to lend.
Frequently Asked Questions
Can a gift cover my entire FHA minimum?
Yes, when the donor is acceptable and the paperwork holds up. A family member, including an in-law, qualifies as a donor under HUD’s FAQ. The lender still needs the signed letter and a traced transfer. Lender guidelines can add their own requirements.
Does down payment assistance count as my own money?
It depends on the shape. A grant of 2% or 3.5% counts toward the FHA minimum investment. On a USDA loan, assistance is not treated as your own funds for the credit test. Ask your lender how each piece is classified in your file.
Do I have to be a first-time buyer?
No. None of the options requires you to be a first-time buyer, so repeat and move-up buyers can qualify. The grant (2% or 3.5% of the purchase price, with nothing to repay) is paired with an FHA first lien and homebuyer education, and it applies an income test of 140% of area median unless a category applies. Confirm with your lender whether a category fits your situation.
Can I use down payment assistance on a rental or second home?
No. Down payment assistance is for owner-occupied primary residences only, so it never applies to a rental, vacation home or second home. Ask your lender before counting on any other source of funds for a property you will not live in.
What if the donor put cash in my account?
Sourcing gets harder. The lender needs the donor’s withdrawal and your deposit, or an electronic transfer record. Cash on hand does not count as a source, so ask your donor to use a bank transfer next time.
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.
Investors who want the broader program framework can review how DSCR loans work.
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References
1. USDA Rural Development Handbook HB-1-3555, Chapter 9
2. HUD Handbook 4155.1, Chapter 5, Section B (older FHA guidance)
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Down Payment Assistance Repayment Rules by Program Type When You Move · Own-Funds Rules When a Gift and DPA Cover the Down Payment · Down Payment Assistance Occupancy Rules for Relocating Buyers
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.