The Quick Read: No. On a conventional loan, the person selling you the house cannot pay your down payment, directly or through a middleman. The seller can credit you money toward closing costs, up to a cap. That credit lowers the cash you bring to the closing table, but it never replaces the down payment itself.
Plenty of buyers hear “seller credit” and assume it is the same thing as help with the down payment. It is not. The two sound alike and work very differently.
Here is the rest of the picture. Real assistance for the down payment does exist, and it sits on the buyer’s side of the table. It comes attached to certain government-backed first mortgages. It is not negotiated with the seller. Lendmire’s page on down payment assistance programs lays out the shapes in one place. This article explains why the seller route fails and what to do instead.
What Is the Difference Between a Seller Credit and a Seller-Funded Down Payment?
A seller credit pays some of your closing costs. A seller-funded down payment would put the seller’s money into your required cash investment. Lenders allow the first and block the second. The difference is what the money is used for and who is putting it up.
Think of your purchase as two buckets. One bucket is your down payment, the skin you put into the house. The other is closing costs: lender charges, title work, prepaid items like taxes and insurance set aside at closing.
A seller credit can go toward the second bucket. The first bucket has to come from you, from a true gift, or from an assistance program that has no stake in the sale.
| Feature | Seller credit | Seller-funded down payment |
|---|---|---|
| Who pays | Seller, through the contract | Seller, often through a middleman |
| What it covers | Eligible closing costs | The buyer’s required investment |
| On a conventional loan | Allowed, up to a cap | Not allowed |
| How it shows up | Closing Disclosure | Often hidden or restructured |
Everyday talk blurs the terms. “Seller concession,” “seller assist,” and “seller credit” all mean the same thing: money from the seller that offsets your costs. Lenders call it an interested party contribution. The phrase just means money from anyone with a stake in the sale going toward your transaction.
Why Don’t Conventional Loans Allow It?
Because the buyer’s own money is the lender’s protection. A down payment shows you have something to lose. If the seller supplies it, you have put in nothing, and the sale price may have been quietly raised to cover the “help.” Conventional rules shut that door on purpose.
An interested party is anyone who gains from the sale going through. That means the seller, the builder, the real estate agents, and their affiliates. Their money can help with costs. It cannot become your stake in the house.
Anything beyond actual costs gets treated as a sales concession.
Fannie Mae adds a disclosure rule. Fannie Mae’s Selling Guide says loans with undisclosed interested party contributions are not eligible for sale to Fannie Mae. It names a “silent” second mortgage held by the seller as an example. Hidden seller money is not a gray area. It can sink the loan.
Here is the traceability point. Underwriters ask where your down payment came from and want a paper trail. If that trail leads back to the seller, the funds do not count. Fix it before underwriting, because the problem only gets more expensive to solve later.
How Do Seller Credit Limits Work?
Conventional loans use tiered caps based on the property type and how much you put down. FHA and USDA use a flat cap of 6% of the sales price. The cap is a ceiling on total seller help, and anything above it reduces the value the lender uses.
On conventional loans, Fannie Mae’s Selling Notice says the limits range from 2% to 9% of property value. In general, the more you put down, the more the seller can contribute. Investment properties sit at the low end. The exact tiers belong in the lender’s guideline table, so confirm yours there rather than trusting a rule of thumb.
What happens when the credit runs over? The excess is treated as a sales concession. It is subtracted from the price, which raises your loan-to-value ratio. Loan-to-value, or LTV, is the loan balance divided by the home’s value. A higher LTV means you need more cash or a restructured deal.
The cap is measured against the lower of price or appraised value on a conventional loan. FHA measures against the sales price.
What Can a Seller Credit Actually Pay For?
On a conventional loan, closing costs and limited HOA dues. On FHA, the list is a bit wider: origination fees, closing costs, and prepaid items. It does not include your minimum required investment. Seller credits also cannot pay off your personal debts.
A few items sit outside the cap. Customary commissions that a seller pays to agents are generally excluded on FHA, USDA, and conventional loans. Lender premium-pricing credits are excluded from the FHA and USDA 6% limits, as long as the lender is not the seller, agent, or builder. The details differ by program, so ask your loan officer how each item is treated on your loan.
Seller-paid rate buydowns and mortgage insurance count toward the cap on most programs. The seller can pay them, but the dollars come out of the same limited allowance.
Why Doesn’t an FHA, USDA, or HUD-184 Loan Change the Answer?
Each program has its own cap and definitions, but they share one rule: the seller cannot fund your minimum investment. Switching away from a conventional loan does not unlock seller-paid down payments. What it can unlock is assistance from a source with no stake in the sale.
On FHA, HUD‘s FHA Resource Center says interested party contributions may not be used for the borrower’s minimum required investment. Contributions above 6% are inducements to purchase. They reduce the property value dollar for dollar before the LTV is applied.
USDA follows a similar shape. Its Rural Development origination FAQ limits seller and interested-party contributions to 6% of the sales price, tied to an eligible loan purpose. It also says interested parties are not eligible gift donors. A seller cannot “gift” you the down payment on USDA either.
The Section 184 program for Native American borrowers nets unallowable sales concessions out of the acquisition cost in its federal rule. The details of its seller-contribution limits live in HUD’s Section 184 handbook. Ask your lender to confirm the current limit before you write an offer.
What Is the Nonprofit Pass-Through, and Why Is It Still Seller Money?
It was a structure where the seller paid a nonprofit, and the nonprofit then handed the buyer a “grant.” Regulators concluded it was not a true gift, because the seller funded it only when the sale closed. Today the rules treat that money as the seller’s contribution, even though it moved through a third party.
The mechanics tell the story. The seller agreed to pay the intermediary if the sale closed. The intermediary took a fee. The buyer received the remainder as assistance. Often the price was set higher to absorb the cost.
HUD’s Inspector General also reviewed the practice for FHA loans. It found that seller-reimbursed nonprofit assistance was not a true gift, that those loans defaulted more often, and that sellers raised prices to cover the assistance. That history is why FHA closed the door.
So any offer that routes seller money to you as “assistance” is the old structure with a new label. Skip it.
What Does This Look Like for a Real Buyer?
Say you are buying a home with an FHA loan. Your minimum investment is 3.5% of the price. The seller agrees to a credit worth 3% of the price. That credit helps with closing costs. It covers none of your 3.5%.
Now suppose the closing costs and prepaid items add up to more than the credit. You still bring cash for the difference. If the credit were larger than your actual eligible costs, the extra could not come back to you as cash. The lender would treat the excess as a concession.
Picture a second case. A seller offers a credit above the 6% cap on an FHA purchase. The portion over the cap lowers the value used for LTV. Your loan amount stays the same, but the ratio gets worse. You either bring more cash or the deal gets renegotiated.
The pattern is simple. What decides the outcome is who pays, what the money covers, and whether the total stays under the cap.
What Counts as a Legitimate Source for Your Down Payment?
Your own savings, a true gift from an eligible donor, or assistance from a program with no stake in the sale. Each has documentation rules. The seller, builder, and agents are never on the list of acceptable sources.
| Source | Counts toward down payment? | Key condition |
|---|---|---|
| Your own savings | Yes | Documented in your accounts |
| Gift from family | Yes | Donor has no tie to the sale |
| Gift of equity from a related seller | Often | Gift rules must be met |
| Seller credit | No | Closing costs only, under the cap |
| Assistance program | Yes | Must fit the first mortgage |
The gift-of-equity row deserves a note. When a relative sells you their home below market value, the difference can serve as your equity. That arrangement runs under the gift rules rather than the interested-party limits, but it needs documentation and lender approval. Ask before you assume it works for your file.
Where Does Real Down Payment Assistance Fit In?
It fits on the buyer’s side, attached to an FHA, USDA, or HUD-184 first mortgage. Across the wholesale programs Lendmire arranges files with, assistance comes in four shapes. The assistance is a percentage of the price or value, never a promise of a set dollar amount, and every option goes through full underwriting.
None of this is a seller contribution. It is a program feature that comes with the loan, and it requires no negotiation with the person across the table. Here is how each shape works.
The grant. This option provides 2% or 3.5% of the purchase price toward the FHA minimum investment. There is nothing to repay. It is released at closing, with no lien, no payment, and no interest. The credit floor is 620. It pairs with FHA first mortgages at 96.5% LTV on one-to-four-unit homes, and it is not offered in Washington. An HUD-approved homebuyer education course is required. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Eligibility is flexible. Your household income can be at or below 140% of the area median income. Or you can qualify through a category: a first responder, educator, medical worker, civil servant, military member, first-time buyer, or someone buying in an underserved census tract.
The forgivable second. This is a second loan worth 3.5% of the lesser of price or appraised value. It carries no interest and no monthly payment. It is fully forgiven after 36 or 60 on-time first-mortgage payments, depending on the version, with no 90-day-or-greater delinquency. The credit floor is 640. It pairs with FHA, HUD-184, and USDA first mortgages on one-to-two-unit homes.
The repayable second. This is a real loan: 3.5% or 5% of the lesser of price or appraised value. At 5%, it also covers closing costs and prepaid items. It carries interest and a monthly payment, with a 30-year amortization and a balloon due in year 10. Credit floor is 660. Plan for that balloon. You would pay it off, refinance, or sell by then.
The refinance-cost second. For an existing FHA borrower refinancing, this option covers 1% to 3.5% of the balance toward closing costs. Combined leverage can reach 104%. It is a loan with the same repayment terms as the repayable second.
Do You Have to Be a First-Time Buyer?
No. Repeat and move-up buyers qualify across these options. The three-year first-time definition is only one of the grant’s qualifying categories. The second-lien options carry no income limit beyond USDA’s own on a USDA first mortgage.
Two limits do apply. The home must be your owner-occupied primary residence. A second home or rental does not qualify. And these options cannot be stacked with another assistance program. A mortgage credit certificate is not permitted with the second liens.
Tax treatment can depend on your situation; buyers should speak with a qualified tax professional before relying on any deduction or credit.
What Does the FHA Loan Underneath Look Like?
The assistance only works with the first mortgage under it, so the FHA basics matter. The minimum investment is 3.5%, which means a 96.5% first mortgage. There is also an upfront mortgage insurance premium based on the base loan amount, which can be financed into the loan. Annual mortgage insurance also applies, and it varies by loan size and LTV.
FHA sets county-based limits on one-unit loans, ranging from $541,287 to $1,249,125 by county. The limits shape which homes the loan can finance. A few assistance options allow high-balance first mortgages. Others do not, so the match depends on your county and price point.
Credit scores matter on both layers. FHA’s own floor is lower than the floors above, because each assistance option adds its own minimum. For the second liens, a lower-scoring co-borrower’s score can be blended in when the primary wage earner earns at least 60% of household income and holds the higher score. Automated underwriting approval is required in that case.
Condos and planned unit developments are eligible, subject to program rules. Escrow holdbacks on the second-lien options can cover minor non-structural repairs up to $5,000, with 150% of the estimate held and the work completed within a timeframe that varies by file and lender.
What Happens If the Lender Traces Funds Back to the Seller?
The funds get disqualified, and the file can stall or fail. Hidden seller money can make a loan ineligible. In a worse case, misrepresenting the source of funds exposes the buyer, seller, and agents to serious trouble. Disclosure protects everyone.
In practice, the problem usually shows up during underwriting. The lender asks for the paper trail on your cash to close. A deposit from the seller’s side, a side agreement, or a “credit” that does not appear on the Closing Disclosure raises questions.
You may then need to restructure the deal. That could mean bringing more of your own cash, renegotiating the price, or walking away. Fixing it before you sign a contract is much cheaper.
Red Flags and What to Ask Your Lender
Be wary of anyone promising a seller-paid down payment. The same goes for a price bump that arrives with an unexplained credit, or a “program” that wants the seller to pay a fee at closing. Those are the old pass-through patterns.
Ask your loan officer these questions before you make an offer:
- What is the seller credit cap on my loan, and is it measured against price or value?
- Which closing costs can a credit pay, and what falls outside the cap?
- Where must my down payment come from, and what documents will you need?
- Is a down payment assistance option available with this first mortgage?
- Does the assistance require homebuyer education, and what are the credit and income tests?
- If the appraisal comes in low, how does that change my cash needed?
Get these answers in writing. They are easier to use when you are writing an offer than after you are under contract.
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 licensed for consumer lending in 16 states, and programs are subject to lender guidelines and full underwriting. This is not a commitment to lend.
Key Terms Defined
Interested party contribution: Money from the seller, builder, agent, or their affiliates that offsets the buyer’s costs. Lenders cap it and require it to be disclosed.
Seller concession: The everyday name for a seller credit toward closing costs. It lowers your cash due at closing but is not part of your down payment.
Minimum required investment: The share of the price you must put in yourself. On FHA, it is 3.5% for most borrowers.
Loan-to-value (LTV): The loan balance divided by the home’s value. Excess concessions raise it.
Inducement to purchase: Seller-side value above the program cap. It reduces the value the lender uses.
Gift of equity: A discount from a related seller, treated as the buyer’s equity when gift rules are met.
Frequently Asked Questions
Can the seller’s agent or the builder contribute toward my costs?
Yes, but only as an interested party, under the same caps and rules as the seller. Agents and builders cannot fund your down payment either. Everything must be disclosed in the contract and shown on the Closing Disclosure.
Can I use a seller credit to meet my minimum investment?
No. On FHA, HUD says interested party contributions may not be used for the minimum required investment. Conventional rules likewise keep seller money away from the down payment and reserves. If you rely on the credit for your stake, you have a funding gap.
Is a gift of equity different from a seller credit?
It can be. When the seller is a relative and the donor has no tie to the builder or agent, a gift of equity may fall under the gift rules instead of the interested-party limits. The lender must verify it. Confirm with your loan officer before counting on it.
What if the appraisal comes in low after the seller gives a credit?
Conventional caps are based on the lower of price or appraised value, so a low appraisal can shrink the allowed credit. Any excess is deducted from the price and raises the LTV. You may need more cash, a price renegotiation, or both.
Is there anything legitimate that works like seller-funded assistance?
Yes, assistance that comes from the program rather than the seller. Through wholesale lenders, the grant, forgivable second, and repayable second pair with government first mortgages for owner-occupied primary homes. You do not need to be a first-time buyer. Credit floors, income tests, and property rules apply, and every file is underwritten individually.
If a family member is also helping with cash, Lendmire’s piece Can Gift Funds and Down Payment Assistance Both Fund an FHA Loan? explains how the two can fit together.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps home buyers in 16 states pair an FHA, USDA or HUD-184 first lien with a down payment assistance option arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide: Interested Party Contributions
2. HUD
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Loan CLTV and Second Lien Rules With Down Payment Assistance · Can a Repeat Buyer Use Down Payment Assistance Before Selling? · Can a Non-Occupant Co-Borrower Be on a Down Payment Assistance Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.