Can a Builder Help With My Down Payment in Texas?

The short answer

Usually not directly. On most mortgages, your down payment has to come from your own funds or an approved source, like a documented gift or a down payment assistance program. A builder, a seller or the real estate agents can't supply it. What a builder can do is put money toward your closing costs, prepaid items or a lower interest rate. That reduces the total cash you need at closing, which leaves more of your savings for the down payment itself.

It's one of the first questions that comes up when buyers start touring new construction around Dallas–Fort Worth, and it's worth understanding before you compare one builder's incentives to another's.

Why the down payment is treated differently

Lenders call money from anyone with a financial stake in the sale (the builder, the seller, the agents) an interested-party contribution. Fannie Mae's guidelines don't allow interested-party contributions to be used for the borrower's down payment. FHA loans have a similar rule: the seller, the builder and anyone else who benefits from the sale can't provide the buyer's required minimum investment. The point is to make sure the buyer has their own money in the home.

What builders can help with instead

Builder incentives in DFW usually take one of these forms:

• Closing-cost credits: money toward lender fees, title charges and other costs at closing.
• Prepaid items: the upfront amounts for property taxes, homeowners insurance and interest that you'd otherwise bring to closing.
• Rate buydowns: paying to lower your interest rate, either for the life of the loan or for the first few years.
• Design or upgrade allowances: credits toward finishes and options in the design center.

Every loan program caps how much a builder or seller can contribute, and the cap depends on your loan type and how much you put down. Your lender will tell you the limit for your loan.

The question I ask about every incentive

When I compare incentives for a buyer, I don't start with the size of the number. I start with where the money goes. A credit toward a rate buydown changes your monthly payment. A closing-cost credit changes the cash you need to bring. A design allowance changes the house. Those aren't interchangeable, and the right one depends on whether your tighter constraint is cash today or your payment every month.

Two more things to ask about:

• Many builder incentives require the builder's preferred lender. Ask for the incentive in writing both ways, with their lender and with your own, so you can compare the full picture.
• Incentives change often, sometimes month to month and community to community. What a builder offered a neighbor last spring may not apply to you.

Where real down payment help comes from

If the down payment itself is the hurdle, there are legitimate sources:

• Gifts from family, documented the way your lender requires.
• Programs through the Texas State Affordable Housing Corporation (TSAHC), including Homes for Texas Heroes and Home Sweet Texas.
• Programs through the Texas Department of Housing and Community Affairs (TDHCA), including My First Texas Home and My Choice Texas Home.
• Some city and county programs in North Texas.

These programs have income and purchase-price limits, and your lender has to participate. A lender who works with them regularly can tell you quickly whether you qualify.

Putting it together

The strongest result usually combines the two: your own savings or an assistance program covers the down payment, and builder incentives cover closing costs, prepaids or the rate. That's how buyers get into a new home with less cash than they expected, inside the rules rather than around them.

If you're renting now and wondering whether the timing could work before your lease is up, start here: Buying Before Your Lease Ends.

If you're touring new construction and trying to make sense of the incentive sheets, send them to me. I'll help you see what each one does to your cash to close and your monthly payment, and connect you with a lender who can confirm the numbers. I represent buyers with builders across Dallas–Fort Worth.

See how Move Forward with The Bankston Group works.

— Katie Bankston, Principal, The Bankston Group at The Agency Dallas