The Quick Read: A DPA grant covers whatever share of your closing costs its percentage allows after your minimum down payment is met, and no federal rule sets that share. In the grant option Lendmire arranges, the amount is 2% or 3.5% of the purchase price, with nothing to repay. Closing costs vary by loan, title charges and prepaids, so the grant can cover most of them for one buyer and a small slice for another. Your Closing Disclosure shows what it actually paid.
Key Takeaways
- The grant is a percentage of price, set by the program. It is not a promise to cover all closing costs.
- On an FHA loan, the grant is aimed at the 3.5% minimum required investment first. Anything beyond that depends on program rules and cash-back limits.
- Seller credits are a separate bucket with their own cap.
- The forgivable and repayable seconds are loans, not grants, and they change the math in different ways.
- You find the real number on your Loan Estimate and Closing Disclosure, not in a brochure.
What a DPA Grant Is (and What It Isn’t)
A DPA grant is down payment assistance that you never repay. Across the wholesale programs Lendmire places files with, it is released at closing. No lien is recorded, no payment is due and no interest accrues. The grant option is 2% or 3.5% of the purchase price, and it pairs with an FHA first mortgage.
Notice the wording: a percentage of price. It is not a percentage of your closing costs. A 3.5% grant on a modestly priced home might swallow a big share of your closing bill. The same 3.5% on a pricier home gives you more dollars, but your closing costs are also larger. Neither number is fixed, so no single “it covers X%” answer holds across buyers.
Many people say “grant” when they mean any kind of assistance. That causes real confusion. Here are the four shapes in the network.
| 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 after 36 or 60 on-time payments | 640 |
| Repayable second | 3.5% or 5% | Yes, balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms | 660 |
Each shape is subject to lender guidelines, full underwriting and the first mortgage it sits on. Credit floors use the lowest representative score among borrowers, with blended scoring allowed on the second-lien options in some cases.
Does the Grant Go to the Down Payment or Closing Costs?
The grant goes first toward your FHA minimum required investment, which is 3.5% of the lesser of the appraised value or the sales price. That is the down payment an FHA loan demands, and it leaves a 96.5% first mortgage. Closing costs are a separate bill on top of that.
Here is where the percentages matter. In the 3.5% grant option, the assistance matches the minimum investment. Your down payment is handled. Closing costs, mortgage insurance paid in cash and prepaids still need a source: your savings, an eligible seller credit, or an FHA loan structure that finances part of the insurance. With a 2% grant, the assistance covers a bit more than half the minimum investment, and you bring the rest.
Some buyers expect a leftover pool of grant money that rolls into closing costs. Do not count on it. The grant’s allowed uses come from the program’s own rules, and a surplus that would turn into cash back to you can break FHA and USDA rules. When that happens, the award is cut or applied only to eligible costs.
Picture a buyer using the 3.5% grant on an FHA purchase. The down payment is covered in full. Their closing costs, say title fees, the lender’s charges, homeowner’s insurance and a few months of tax escrow, still come out of pocket. They check the Closing Disclosure and find the grant sitting in the credits column. That is the usual picture: strong help on the down payment, partial or no help on closing costs.
The one exception is the repayable second at the 5% level. That option is built to cover the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It does reach closing costs, but it is a real loan with a monthly payment and a balloon due in year 10. Calling it a grant would be wrong.
How the First Mortgage and the Assistance Get Underwritten
The first mortgage sets the rules. The assistance sits on top of it. Here is the sequence, step by step.
1. Pick the first lien. The grant pairs with FHA first liens only. The forgivable and repayable seconds also pair with USDA and HUD-184.
2. Pick the assistance shape. Your credit, income, property and plans decide this. A public-service worker may lean to the grant. A buyer with thin savings and a strong score may lean to a repayable second at the higher percentage.
3. Confirm what the money may pay for. Down payment only, or down payment plus closing costs and prepaids. The provider’s rules decide.
4. Document the source. The lender needs the award terms on file. Government-sourced assistance is not barred under FHA, but the lender has to confirm the program meets FHA requirements. HUD’s Inspector General notes that HUD does not approve DPA programs itself, and that assistance usually arrives as a grant or a secondary loan.
5. Run underwriting. A grant adds no debt. A repayable second adds a monthly payment that counts in your debt ratios. A forgivable second carries no payment, but the lender still reviews the lien terms.
6. Disclosures. The repayable second gets its own loan disclosure and balloon disclosure. The first mortgage gets its own.
7. Settlement. The assistance is applied to eligible costs. Any excess that would become cash back to you is trimmed.
The file needs an application, an automated underwriting (AUS) finding and, for the grant, an HUD-approved homebuyer education course. You pay for the course up front, and the cost is credited back at closing. The forgivable and repayable seconds carry no counseling requirement in the network. All of this is subject to program guidelines and full underwriting, and nothing here is a commitment to lend.
Seller Credits Are a Different Bucket
Seller credits and DPA are not the same thing, and mixing them up trips people. On FHA, HUD’s guidance on interested-party contributions caps them at six percent. Contributions above that, or above your actual costs, count as inducements to purchase. HUD then reduces the price dollar for dollar when it calculates the maximum loan. Interested-party money also cannot be used toward your minimum required investment.
USDA uses the same six percent ceiling. USDA’s guaranteed loan handbook chapter on interested-party contributions limits them to six percent of the sales price and requires them to go toward an eligible loan purpose.
So the stacking order works like this. The grant targets your down payment. Seller credits, within their cap, can help with closing costs. Lender credits are treated separately under FHA’s rule. Together they can cover a lot, but each has its own ceiling, and none can add up to cash in your pocket.
Where the General Rule Breaks
A few edge cases change the answer.
The grant is bigger than what it may pay. On FHA and USDA, cash back at closing is restricted. USDA will not issue its loan note guarantee if you walk away with cash beyond what you paid out of pocket for items like earnest money or the appraisal. Lenders reduce the award rather than risk that.
A “grant” that is really a forgivable lien. Many programs advertised as grants are second mortgages forgiven over time. In the network’s forgivable option, the second is 3.5% of the lesser of price or value, carries no interest and no payment, and is forgiven after 36 or 60 on-time first-lien payments. Sell or refinance early, and the unforgiven portion may come due, as consumer explainers like ConsumerAffairs describe. It is only free if you stay and pay on time. The true grant has no such string.
A refinance. USDA does not let assistance loans roll into a new guaranteed refinance. They must be subordinated or paid off. The network’s refinance-cost second is different: it covers 1% to 3.5% of the balance on an FHA refinance, with combined leverage up to 104%, and it is a repayable loan. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Native American housing loans. On an HUD-184 first mortgage, tribal or tribally designated entities may offer their own assistance, sometimes with source-of-funds limits. Only the forgivable and repayable seconds pair with HUD-184 in the network. The grant does not.
Washington State. The grant option is not offered there. The second-lien options remain available, subject to program guidelines.
A second home or rental. Not eligible. Every option is for an owner-occupied primary residence only.
Past abuses. HUD’s Inspector General found that older seller-funded “gift” programs failed the true-gift test, and some sellers raised prices to cover the assistance. Today’s rules separate governmental assistance from seller-funded money, which is why the paperwork is thorough.
Who Qualifies for the Grant?
Nobody has to be a first-time buyer. Repeat and move-up buyers qualify. The grant has one income test: household income at or below 140% of area median income. You can skip that test if you fall into a qualifying category. Those categories are:
- First responders: police, fire, public safety, paramedics and EMTs, whether current, former or entering service
- Educators
- Medical personnel, including nurses, doctors, phlebotomists and hospital or Red Cross workers
- Civil servants at the federal, state or local level
- Military personnel, current, retired, volunteer or unpaid
- First-time buyers, meaning no ownership interest in a residential property in the three years before applying
- Buyers purchasing in an underserved census tract
The grant takes 1-4 unit owner-occupied homes, FHA-approved condominiums and PUDs. The second-lien options have no income limit beyond USDA’s own limit when the first lien is USDA. For context, USDA’s program page puts household income at no more than 115% of area median for its guaranteed loan.
You cannot combine one assistance option with another. A mortgage credit certificate is not permitted with the second-lien options.
The FHA Facts Underneath
The assistance only makes sense once you see what the first mortgage charges. FHA’s minimum investment is 3.5% for a representative credit score of 580 or higher. FHA also charges an upfront mortgage insurance premium, which you can finance into the loan; confirm the current terms with your lender. Annual mortgage insurance varies by loan size, term and leverage, and it lasts the life of the loan when you put down less than 10%. Ask your lender and a qualified local insurance professional about current premium costs for your situation. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
One-unit FHA loan limits run from $541,287 to $1,249,125 by county. The assistance options carry credit floors above FHA’s own minimum, so a 580 score that works for plain FHA will not unlock a grant at 620 or the seconds at 640 and 660.
This is also where the cash gap hides. Financing the upfront premium shrinks your closing bill but raises the loan. Paying it in cash does the reverse. Grant dollars do not change that choice, but they change how much cash you need on hand.
What You Do Before Closing Day
Not every cost waits for the closing table. Earnest money, the inspection and often the appraisal come out of your pocket early, before any grant funds. Keep receipts. Some of those are credited back at closing, and the grant does not reimburse the rest.
The homebuyer education course for the grant is also paid up front, then credited back at closing. Budget for it.
Then, by federal rule, your lender must hand you the Closing Disclosure at least three business days before closing. Compare it to your Loan Estimate line by line. “Cash to Close” is your down payment plus closing costs, minus deposits and credits. The grant shows up in that credits math, which is the number you actually wire.
How to Find Your Real Number
You will not get a clean “covers X%” answer from a brochure. Ask your loan officer these:
1. Which shape fits my credit, income and property?
2. Is the assistance aimed only at the minimum investment, or can part of it pay closing costs?
3. What happens if my costs come in lower than the award?
4. How much can my seller contribute, and how does that sit alongside the assistance?
5. Is my upfront mortgage insurance financed or paid in cash?
6. If I choose a second lien, what is the monthly payment, and when does the balloon come due?
If the answer to any of these is vague, ask for it in writing. A good loan officer lays out the stack: first mortgage, assistance, seller credits, then what you still owe at the table.
A reader who wants broader context on cash-out math can see how Lendmire’s piece How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs breaks costs down for a different borrower. The principle is the same: the sticker number and the number you walk away with are not the same.
Key Terms Defined
Closing costs: The upfront charges to get the loan and transfer ownership, such as lender, title and recording fees, plus prepaids.
Prepaids: Costs paid ahead of time at closing, like initial insurance and tax escrow deposits.
Minimum required investment: The smallest down payment FHA allows, 3.5% of the lesser of price or appraised value.
Cash to Close: The total you must bring: down payment plus closing costs, minus deposits and credits.
Second lien: A loan recorded behind your main mortgage. It must be repaid or forgiven under its own terms.
Balloon payment: A lump sum due at a set date, here in year 10 on the repayable second.
Interested-party contribution: Money from the seller, builder or others with a stake in the sale, capped on FHA and USDA.
Where This Leaves You
Start with the shape, not the headline. If you qualify for the grant, it handles the down payment and leaves closing costs mostly to you and your seller credits. If you need help with closing costs too, the repayable second at the higher percentage reaches them, at the price of a monthly payment and a balloon. If you want no payment and are willing to stay put, the forgivable second fits.
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. You can look through Lendmire’s down payment assistance programs or call 828-256-2183. Availability is through wholesale lenders, subject to program guidelines and full underwriting, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I choose to use the grant for closing costs instead of the down payment?
Usually not. On an FHA purchase, the grant is aimed at the 3.5% minimum required investment first. Whether any piece can go to closing costs depends on the provider’s rules and on cash-back limits. Ask your loan officer for the allowed uses in writing before you count on it.
What happens if the grant is larger than the costs it can pay?
The lender trims the award or applies it only to eligible costs. FHA and USDA restrict cash back at closing, and USDA withholds its guarantee if you receive cash beyond your own out-of-pocket costs. You do not pocket the difference.
Do I need to be a first-time buyer?
No. Repeat and move-up buyers qualify across the network’s options. First-time status is only one of several categories that can waive the grant’s 140% area-median-income test.
Is a grant the same as a forgivable second?
No. The grant has nothing to repay and records no lien. The forgivable second is a loan with no interest or payment, forgiven after 36 or 60 on-time first-lien payments. Selling or refinancing early can trigger repayment of what is not yet forgiven.
Can I use a seller credit along with the grant?
Often yes, within limits. FHA and USDA cap seller and other interested-party contributions at six percent of the sales price, and on FHA they cannot count toward your minimum investment. Credits above the cap or above your actual costs reduce the price HUD uses for the maximum loan.
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. USDA
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: How Grant and Second-Mortgage DPA Programs Price the Assistance · Does a Relocating Buyer Owe Anything on a DPA When They Move? · How Much DPA Is Still Owed If You Refinance Before Full Forgiveness?
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.