The Quick Read: Usually, yes, as long as each pot of money pays for the right thing. Builder incentives can generally cover closing costs, prepaids and points, up to a cap. They cannot fund your own down payment. Assistance has to come from a source your first mortgage accepts, and a builder is not one of them.
The cap that matters is 6% of the sales price on both FHA and USDA loans. Credits above that, or above your real eligible costs, get treated as a price cut when the lender computes your loan.
Which Pot Pays for What?
Builder money pays for closing costs. Assistance pays for the down payment. They are not interchangeable. Mixing them up is the most common stacking mistake, and it is easy to avoid once you see the split.
Builders usually offer some mix of closing-cost credits, a rate buydown (a payment that lowers the interest cost, either for a few years or for the life of the loan), and design or upgrade packages. HUD treats the builder as an “interested party,” along with sellers, agents and developers, per the HUD FHA Handbook Glossary.
Down payment assistance is different. It comes through down payment assistance programs paired with a government-backed first mortgage. Across the wholesale programs Lendmire arranges, there are four shapes:
| Shape | What it is | Repay? |
|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay |
| Forgivable second | 3.5% of price or value | Forgiven after 36 or 60 on-time payments |
| Repayable second | 3.5% or 5% of price or value | Yes, 30-year amortization, balloon in year 10 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms as repayable |
The refinance-cost option only applies to an FHA refinance, so it does not matter for a new purchase. The other three are the ones a new-build buyer compares.
The builder cannot be the source of any of these. That is the whole point of the split.
What Does HUD Say About the 6% Cap?
On FHA, interested parties may contribute up to 6% of the sales price toward your closing costs and prepaids. Anything beyond that, or beyond what those costs actually are, is an inducement to purchase.
Per the HUD FHA Resource Center, excess credits reduce the purchase price dollar for dollar when the lender computes adjusted value, before the loan-to-value percentage is applied. HUD also says these contributions may not be used for your minimum required investment. That is the FHA term for your down payment.
Two practical points follow:
- Buydowns count toward the cap. Builder money spent on a rate buydown competes with closing-cost credits for the same 6%. A generous buydown can leave less room for everything else.
- Oversized credits cost you cash. If credits exceed the cap, the lender underwrites on a lower value. You may need more cash at closing, not less.
You can confirm the current rules in HUD’s Handbook 4000.1, since agency guidance gets updated.
Why Can’t the Builder Just Give Me the Down Payment?
Because the first-mortgage programs say who may fund it, and builders are not on the list. FHA accepts gifts from family, employers, charities and government entities with homeownership programs. USDA goes further and says interested parties are not eligible gift donors, per its loan origination FAQ.
A builder who calls a credit a “gift” does not change how the lender classifies it. The money still comes from an interested party. It can pay eligible closing costs, but it cannot be your down payment.
How Does the Stack Actually Work?
Each dollar goes to one job. Picture a buyer using an FHA first mortgage on a new build:
1. The grant or forgivable second covers the minimum investment the FHA first mortgage requires.
2. The builder’s credit covers closing costs and prepaids, kept under the seller-contribution cap.
3. The lender checks that every dollar lands in an allowed bucket and that total credits stay under the cap and your actual costs.
Notice what is missing: cash back. Credits and assistance together can shrink what you bring to closing. They cannot put money in your pocket. On USDA, excess seller contributions go to principal or back to the seller, never to you.
USDA’s handbook caps interested-party contributions at 6% of price and requires them to serve an eligible loan purpose. It also bars using them for personal debt or movable personal property such as furniture. USDA’s cap does not cover premium-pricing credits a lender provides, and it does not apply to single-close construction-to-permanent loans.
Does the Assistance Itself Count Toward the Cap?
Not as builder money, when the source is eligible. Assistance from a government entity or approved nonprofit is not an interested-party contribution from the builder. It is a separate source with its own rules.
Here is the catch with the second-lien options. HUD does not treat a second mortgage as a gift, even a “soft” or “silent” one with forgiving features. A forgivable second is a loan that gets forgiven on a schedule. The repayable second is a real loan with a monthly payment.
HUD requires that combined payments stay within your ability to repay. On the repayable second, that means a balloon due in year 10 and a payment on top of your first mortgage. Run that budget before you sign a contract, not after.
The grant works differently. It is released at closing, with no lien and no payment. It pairs with FHA first mortgages only. The forgivable and repayable seconds also pair with USDA and HUD-184 first mortgages.
What About USDA and HUD-184?
USDA has the same 6% limit. HUD-184 handles concessions through its own handbook, and the details are worth confirming with your lender.
The Section 184 program, which serves eligible Native American borrowers, guarantees loans made by approved lenders. HUD says it does not directly provide down payment assistance or grants. Its policy handbook also says unallowable sales concessions get deducted when value is computed. For the exact concession limit, ask the lender and check HUD’s Section 184 program page.
Who Qualifies for the Assistance?
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify for all three purchase options. The assistance is for an owner-occupied primary residence only, not a second home or rental.
The details differ by option, subject to program guidelines and full underwriting:
- Grant: credit score of 620, and household income at or below 140% of area median income, unless you fall into a qualifying category. Those include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, or a home in an underserved census tract. A homebuyer education course is required. Not offered in Washington.
- Forgivable second: credit score of 640 (660 on a blended basis). No income limit beyond USDA’s own on a USDA first mortgage.
- Repayable second: credit score of 660 (670 blended). At 5%, it also covers closing costs and prepaids. No income limit beyond USDA’s own. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A “blended” score means a lower-scoring co-borrower’s score is averaged in, under conditions the program sets. None of these options combine with another assistance program. A mortgage credit certificate is also not allowed with the seconds.
Underneath it all sits the FHA first mortgage: 3.5% minimum investment, 96.5% first-lien leverage, and an upfront mortgage insurance premium that can be financed into the loan. Annual mortgage insurance varies by tier. One-unit FHA limits run from $541,287 to $1,249,125 depending on the county.
What Does the Paperwork Look Like?
Everything gets documented, and the builder’s incentive must be in writing. HUD requires the lender to record total interested-party contributions on the sales contract or another binding document, on form HUD-92900-LT, and on the Closing Disclosure.
For any second lien, the lender collects documentation of the funds and copies of the loan instruments. New FHA construction also needs builder paperwork, including a builder’s certification the appraiser relies on.
Expect the lender to want proof that an assistance provider is a legitimate government entity or approved nonprofit. Documentation scrutiny on this has changed over the years, so a request for proof is routine.
Should I Use the Builder’s Lender?
You do not have to. Builders often have an affiliated lender, but buyers are free to shop around. It is generally worth comparing lenders even when a builder has a preferred one.
This is where stacking can get tricky. A builder may tie its best incentive to its own lender, while your assistance option runs through a different set of wholesale lenders. Before choosing, compare two things side by side:
- The value of the builder’s incentive.
- What that lender’s loan terms would cost you over time compared with an outside quote.
A big credit attached to weaker loan terms can cost more than it saves. Ask the builder for the incentive allocation in writing before you decide.
Builders also like credits better than price cuts because credits do not lower the comparable sale prices in the neighborhood. That is useful to know when you negotiate. A price reduction and a credit are not the same thing to the builder, or to your lender.
If your build involves jumbo-sized financing, Lendmire’s piece How Jumbo Loan Builder Incentives and Timing Work on New Construction covers a different loan type with its own timing questions.
When Stacking Does Not Work
Stacking fails in a few predictable cases. Watch for these:
- The credit is too large. Anything over 6%, or over your real costs, lowers the value used to size your loan.
- The builder wants to fund the down payment. That is not allowed on FHA or USDA.
- The numbers need cash back. Neither program lets leftover credit come back to you.
- Your budget cannot carry the second. A repayable second adds a payment and a year-10 balloon.
- Another assistance program is already in play. None of the options combine with a second assistance program.
- The assistance provider is not eligible for your first-lien program.
A deposit on an unbuilt home is its own risk. Builders may ask for one, so ask under what conditions it can be returned.
Key Terms Defined
Interested party: a builder, seller, agent or developer with a stake in the sale.
Inducement to purchase: a credit above the cap or your actual costs, treated as a price reduction.
Minimum required investment: the 3.5% FHA down payment, which builder money cannot fund.
Forgivable second: a no-interest, no-payment loan forgiven after 36 or 60 on-time first-mortgage payments.
Balloon: a lump-sum balance due at the end of a set period, year 10 on the repayable second.
A Simple Decision Path
Start with your cash. If down payment is the gap, assistance fills it. If closing costs are the gap, the builder credit fills it. If both are gaps, you stack them.
Then check the cap: builder credits at or under 6% of price, and no more than your actual eligible costs. Then check the budget, especially if you choose the repayable second. Finally, compare the builder’s lender against an outside quote.
Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit. HUD-approved housing counseling is also a useful stop before signing a build contract, and you can find it at HUD’s housing counseling page.
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, through wholesale lenders and subject to program guidelines and full underwriting.
Frequently Asked Questions
Can builder credits pay my down payment?
No. On FHA, interested-party money cannot be used for the minimum required investment. USDA also bars interested parties as gift donors. Builder credits can cover eligible closing costs, prepaids and points, up to the cap.
Does down payment assistance count as a seller concession?
Not when it comes from an eligible government entity or approved nonprofit. The builder’s credits remain the interested-party contributions subject to the 6% cap. Your lender confirms how each dollar is classified.
What if my credits and assistance exceed my costs?
The excess does not come back to you as cash. On FHA, contributions above actual eligible costs reduce the value used for underwriting. On USDA, the excess goes to principal or back to the seller.
Can I use an outside lender and still get the builder’s incentive?
Sometimes, but it depends on the builder’s contract terms. You are generally not required to use the builder’s lender. Ask the builder in writing what happens to the incentive if you use another lender, then weigh that against the outside loan terms.
Do I have to be a first-time buyer?
No. None of the assistance options requires you to be a first-time buyer, so repeat and move-up buyers can qualify. The grant has an income test of 140% of area median income unless a qualifying category applies to you. All of it applies to an owner-occupied primary residence only.
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 Rural Development Handbook HB-1-3555, Chapter 6
This article is part of Lendmire’s First Time Home Buyer series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Does a Low Appraisal Reduce DPA for a New-Construction Buyer? · Down Payment Assistance Funding Rules for New Construction Buyers · Who Must Occupy and Who Must Take the Class on a DPA Loan?
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.