The Quick Read: No, not in a way that counts as your down payment on an FHA loan. Federal rules bar the seller, or anyone who profits from the sale, from supplying the money you must invest in the purchase. A seller can still help with certain closing costs, and that help is capped. Asking for it also makes your offer less attractive next to a cash bid, so the better move is to fund your down payment from a permitted source and keep the seller out of it.
What Is the Difference Between DPA, Seller Credits, Gift Funds and Lender Credits?
These four tools get blurred together constantly, and the blur is where buyers get hurt. Each one has a different payer, a different purpose, and a different spot on the closing statement.
| Tool | Who pays | What it can cover |
|---|---|---|
| Down payment assistance | A program, arranged by the buyer | The required investment, sometimes closing costs |
| Seller concession | The seller, via the contract | Eligible closing costs and prepaids only |
| Gift funds | A family member | Down payment or closing costs |
| Lender credit | The lender | Closing costs, set by the loan’s pricing |
Down payment assistance is arranged on the buyer’s side of the table. The seller never sees it as a cost. A seller concession is a negotiated line in the sales contract, and it lowers what the seller walks away with. Those two facts explain most of what follows.
Lendmire is a mortgage broker licensed for consumer lending in 16 states, and the down payment assistance programs it arranges through wholesale lenders fall into the first row. They pair with FHA, USDA and HUD-184 first mortgages on owner-occupied primary residences. Nobody has to be a first-time buyer. Repeat and move-up buyers qualify, subject to program guidelines and full underwriting.
Why Can’t Seller Money Simply Become Your Down Payment?
Because it was tried, and it went badly. Sellers used to route money to buyers through intermediary groups and then raise the sale price to get the money back. The loans were built on inflated values. The Urban Institute describes how that pattern produced exaggerated losses for FHA, and HUD reported that those loans defaulted at nearly three times the rate of other FHA loans.
Congress shut it down. The rule now has four practical pieces:
1. The seller is a prohibited source. So is any entity that financially benefits from the sale.
2. Indirect routes count too. A “nonprofit” that the seller repays, before, during or after closing, does not get around the ban.
3. Seller money can still help elsewhere. It just does not count toward your required 3.5% minimum investment on an FHA loan.
4. The price must stay honest. Help beyond actual costs, or beyond the cap, is treated as an inducement to purchase and subtracted from the price when the lender sizes the loan.
That last point matters most in practice. If a seller credit is too large, the lender does not simply cancel the extra. The lender lowers the value it lends against. You then need more cash, which is the opposite of what you wanted.
What Can a Seller Actually Pay For?
Closing costs and prepaid items, up to six percent of the price and never more than the actual costs. HUD’s FHA guidance sets that six percent cap and requires the lender to document the total on the sales contract and the Closing Disclosure.
A few details save headaches:
- “Interested party” is broad. It covers sellers, agents, builders, developers and others with a stake in the deal.
- The cap has an exclusion. Agent commissions the seller normally pays under local law or custom are not counted against it.
- Lender premium-pricing credits are different. FHA does not count them toward the six percent, provided the lender is not the seller, agent, builder or developer.
- USDA works the same way on closing costs. There is no down payment to fund on a USDA loan, but USDA’s handbook limits seller help to six percent of the price and requires it to serve an eligible loan purpose. It cannot pay your personal debts or arrive as furniture, cars or boats.
- HUD-184 treats it as a sales concession. HUD’s rule text removes it from acquisition cost. The exact seller-contribution limit is something to confirm against current HUD guidance for that program, since this article does not state one.
Public assistance is a different animal. Assistance from a government entity is a permitted source, and the HUD Inspector General has said so. A seller-funded “DPA” is not.
Why Do Cash Buyers Beat You in the First Place?
Certainty. A cash offer has no loan, no appraisal condition and no lender timeline for the seller to worry about. Cash is not rare either. NAR data show that 6% of first-time buyers paid cash in 2023, versus 26% of repeat buyers. Repeat buyers are often the ones sitting across from you in a multiple-offer situation.
Here is the seller’s view, and how a financed buyer answers each worry.
| Seller worry | How a financed buyer answers it |
|---|---|
| Will the loan fall through? | Strong preapproval, documents in hand |
| Will the appraisal come in low? | A plan for any gap, stated in the offer |
| Will it drag on? | Clean offer, few contingencies |
| Will I net less? | Ask for little or nothing in credits |
A request for seller credits asks the seller to net less, and a cash offer asks for nothing of the kind. When you ask for credits against a cash bid, you give the seller two reasons to prefer the other offer.
How Do You Build a Strong Offer When You Need Assistance?
Keep the assistance on your side of the table and make the rest of the offer easy to say yes to. Here is the sequence that tends to work.
1. Settle the down payment source first. Decide before you tour homes whether it comes from savings, a family gift, or one of the assistance options. Lenders must document that funds come from acceptable sources, and HUD does not approve assistance programs itself, so the program and lender carry that burden.
2. Get a full preapproval, not a prequalification. Attach it to the offer. Ask your lender how the assistance appears in the file so you can describe it plainly to the listing agent.
3. Leave the seller’s side clean. If you ask for any credit, ask only for closing costs, and keep it modest.
4. Tighten what you control. Earnest money, inspection windows, an appraisal-gap plan and a flexible closing date all reduce seller risk without costing the seller a dollar.
5. Know your walk-away number. Escalation clauses help only if you have decided in advance where they stop.
The assistance options Lendmire arranges through wholesale lenders come in four shapes. Which one fits depends on your credit, income and first mortgage.
| Option | Amount | Repayment |
|---|---|---|
| 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 | Monthly payments, balloon in year 10 |
| Refinance-cost second | 1% to 3.5% of balance | Same terms as repayable |
The grant is released at closing with no lien, no payment and no interest. It carries a credit floor of 620 and pairs with FHA first mortgages. The income test is 140% of area median income unless a qualifying category applies: 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, and the grant is not offered in Washington.
The forgivable second has a 640 credit floor and carries no interest or monthly payment. It pairs with FHA, USDA or HUD-184 first mortgages. Missing payments or a serious delinquency on the first lien can cost you the forgiveness.
The repayable second is a real loan. It has interest, a monthly payment, a 30-year amortization and a balloon due in year 10. It requires a 660 credit floor. At 5%, it also covers closing costs and prepaids, which means the extra 1.5% lets you avoid asking the seller for any credit at all. That is the cleanest answer to the question in the title. The refinance-cost second applies only to FHA refinances, so it will not help you win a home.
Two cautions. None of these stacks with another assistance program. All are for owner-occupied primary residences only, never a second home or a rental. Everything runs through wholesale lenders, subject to program guidelines and full underwriting.
Does Assistance Weaken Your Offer Against Cash?
It can, but not for the reason most buyers fear. The assistance dollars themselves never touch the seller’s net proceeds, so the seller has no direct reason to dislike them. What the seller may worry about is the extra step. A second lien means additional documentation and a separate disclosure, and a listing agent unfamiliar with it may read that as risk.
The fix is communication, not concessions. Have your lender confirm the structure early, and let your agent explain in one sentence that the assistance is arranged on your side and asks nothing of the seller. A tidy preapproval that mentions it plainly does more than a higher price would.
Think about two buyers bidding on the same listing. One offers a decent price, asks for the maximum seller credit, and leaves the down payment source vague. The other offers the same price, asks for nothing, and attaches a preapproval that documents assistance from a permitted source. A seller comparing them sees the second as the lower-friction deal. The second buyer did not outspend the first. They simply asked less of the seller.
Seller Credit or Price Reduction: Which Helps You More?
It depends on what you are short of. A credit lowers the cash you need at closing. A price reduction lowers the loan itself and, with it, your monthly obligation for as long as you hold the mortgage. Neither reaches the 3.5% FHA minimum investment.
Choose the credit if closing cash is your bottleneck and the appraisal supports the price. Choose the price cut if you can cover closing costs but want a smaller loan. In a multiple-offer situation, though, either request costs the seller something. The seller’s best-case math is a clean offer with no asks, and a buyer who needs one must be strong everywhere else.
Subordinate financing also counts in the qualifying ratios, so a second lien from an assistance option adds to the debt the lender measures. FHA manual-underwriting ratios sit at 31/43, and automated approvals commonly allow more. The assistance options follow the automated finding.
What Mistakes Cost Buyers the Most?
- Side agreements. Any cash back, undisclosed seller payment or off-contract arrangement can wreck the file. HUD requires concessions to be documented on the contract and Closing Disclosure.
- Treating a nonprofit as a laundering step. If the seller reimburses it, the funds are prohibited no matter how the paperwork looks.
- Asking for the cap by habit. Six percent is a ceiling on actual costs, not a target. Excess becomes an inducement and lowers the value you borrow against.
- Assuming USDA needs assistance for a down payment. USDA loans normally have no down payment requirement, though the six percent seller limit still governs closing-cost help.
- Confusing Section 184 with assistance. HUD’s handbook says the program does not provide assistance. Any help comes from tribes or other entities, and gifts from parties with an interest in the sale are subtracted from the price.
When Should You Keep Bidding and When Should You Pivot?
Keep bidding when your own funds and permitted assistance cover the full investment, and the only thing standing between you and a win is price. Pivot when the offer only works if the seller pays for something. Then you are asking the seller to subsidize you in a market where they do not need to.
A pivot can take several forms. Look at homes that have sat on the market, where sellers are more open to credits. Look at property types that attract fewer cash investors, such as condominiums or homes needing light repair. Or widen your search area. FHA’s 2026 one-unit loan limits run from $541,287 to $1,249,125 depending on the county, so the ceiling may differ more than you expect from one county to the next.
Sometimes the right call is to walk away. If a home needs every concession, a stretched appraisal and an escalation clause to work, the deal is telling you something.
Key Terms Defined
Minimum required investment: The cash an FHA buyer must put in, 3.5% of the lesser of price or appraised value, from acceptable sources.
Interested party: Anyone with a stake in the sale, such as the seller, agent, builder or lender.
Inducement to purchase: A seller contribution beyond actual costs or the cap, which lowers the value used to size your loan.
Adjusted value: The lesser of the price minus any inducements, or the appraised value.
Seller concession: Money the seller agrees in the contract to pay toward your eligible closing costs.
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. Call 828-256-2183. Program terms are subject to lender guidelines and underwriting. This is not a commitment to lend. Lendmire’s piece How to Weigh FHA Cash-Out Against Conventional When DTI Fits FHA is a useful read if you later consider tapping equity.
Frequently Asked Questions
Will a seller accept a DPA offer over a cash offer?
Sometimes, if the rest of the offer lowers their risk. Assistance arranged on your side asks nothing of the seller, so it is not the obstacle. The obstacles are credit requests, long contingencies and a weak preapproval. A strong financed offer with few asks can beat a cash offer that comes in lower.
Can I ask the seller for credits and still win?
Possibly, but you are fighting uphill. Credits may cover closing costs and prepaids only, up to the cap, and they reduce the seller’s net. Against a cash bid, a smaller ask or no ask is safer. If you need help with closing costs, one repayable option at 5% includes them, so the seller never has to.
Does down payment assistance slow down my closing?
Plan for extra documentation, since a second lien carries its own disclosure and the lender must verify funds from an acceptable source. Ask your loan team early how the assistance will be documented so your agent can describe it in the offer. Lendmire does not promise any closing timeline.
Can a family member’s gift replace seller-funded help?
Yes. A family gift is an acceptable source for the FHA minimum investment, along with your own funds and assistance from a government entity or approved charity. It must be verified and documented. Gift funds are separate from assistance programs, and no assistance option stacks with another one.
Does this apply if I want to buy a rental or second home?
No. The assistance options described here are for owner-occupied primary residences 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
2. HUD FHA Q&A: seller or interested party costs
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: Conventional Loan Requirements for a Down Payment Assistance Second Lien · Does Down Payment Assistance Have an Income Limit? · Down Payment Assistance vs Gift Funds From Family
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.