Yes, you can borrow money specifically for a down payment, but lenders have strict rules about it

You can get a loan to cover part or all of your down payment, but the lender giving you the mortgage will want to know about it. Most mortgage lenders require you to disclose any borrowed funds, and some will not approve your mortgage if the down payment itself is borrowed. Others allow it under specific conditions — usually that a family member gave you a gift rather than a loan, or that you borrowed from your own retirement account.

The reason lenders care is straightforward: they want to know you have some of your own money at stake. If you borrowed everything, including the down payment, you have borrowed 100 percent of the home's cost. That makes the lender's risk much higher, because you have no personal cushion if the home loses value or you run into trouble making payments.

Key Takeaways

  • Most mortgage lenders will not approve a loan where the down payment itself was borrowed from a bank or credit union, but they may allow gifts from family members.
  • You can borrow from your own retirement account (a 401(k) loan or IRA withdrawal) for a down payment, though this has tax and long-term cost consequences.
  • Some first-time homebuyer programs allow down payment information that does not count as a loan you have to repay.
  • If a lender discovers you borrowed the down payment without disclosing it, they can deny the mortgage or demand repayment of the loan before closing.
  • The clearest path is a gift from a family member, which most lenders accept as long as you document that it is a gift, not a loan.

Why mortgage lenders restrict borrowed down payments

A mortgage lender is taking on risk by lending you money to buy a home. They protect that risk by requiring you to put some of your own money down. That down payment is your "skin in the game" — it means you have something to lose if the home's value drops or you cannot pay the mortgage.

If you borrowed the down payment, you have not actually put your own money in. You have borrowed 100 percent of the purchase price. If the home's value drops 10 percent in the first year, you are underwater — you owe more than the home is worth — and you have no personal savings cushion to fall back on. That is why lenders treat borrowed down payments as a red flag.

This rule exists across most conventional mortgages, FHA loans, VA loans, and USDA loans. The specific rules vary, but the principle is the same: lenders want evidence that you can save money and manage debt responsibly.

Borrowing from your own retirement account

The most straightforward way to borrow for a down payment is to take money from your own 401(k) or IRA. These are retirement savings accounts that you own. A 401(k) loan lets you borrow against your balance and repay it over time, usually five years. An IRA withdrawal for a first-time home purchase lets you take up to $10,000 lifetime without the early withdrawal penalty that normally applies.

Mortgage lenders generally accept this because the money is genuinely yours — you are not borrowing from a bank. However, there are real costs to doing this. If you take a 401(k) loan and leave your job before repaying it, the loan becomes due when ready, and if you cannot pay it back, it counts as a withdrawal subject to income tax and a 10 percent penalty. An IRA withdrawal is permanent — that money is gone from your retirement savings forever, and you cannot put it back.

Before borrowing from retirement, talk to the plan administrator or a tax professional about the exact consequences for your situation. The short-term gain of a down payment can cost you significantly in retirement.

Gifts from family members

Most mortgage lenders will accept a down payment that came from a gift — money a family member gave you with no expectation of repayment. This is the most common workaround. The lender will require a gift letter, a signed statement from the family member confirming that the money is a gift, not a loan, and that they do not expect repayment.

The gift letter is straightforward. It should include the family member's name, the amount, the date, and a statement that it is a gift with no repayment obligation. Some lenders have a template you can use. The family member does not have to be a close relative — it can be a friend, though lenders are more comfortable with family.

The lender will also ask where the gift came from. They want to see that the family member actually has the money — usually a bank statement showing the funds. This is part of anti-money-laundering rules that explore to all mortgage lenders. If the gift is large, the family member may need to document where they got the money.

First-time homebuyer programs with down payment help

Some state and local programs offer down payment information that does not count as a loan you have to repay. These are grants or forgivable loans — money given to you specifically to cover part of the down payment. The rules vary widely by location and program.

A forgivable loan is money you borrow but do not have to repay as long as you stay in the home for a set period, usually five to ten years. If you sell or move before that time, you have to repay it. A grant is money you do not have to repay under any circumstance. Both count differently on a mortgage process — grants are treated like gifts, and forgivable loans are treated as debt you owe, though some lenders are more flexible with them than with traditional loans.

To find these programs, contact your city or county housing authority, or search your state's housing finance agency website. Programs change frequently, and availability depends on your income, the home price, and your location. Some are only for first-time buyers, and some have income limits.

What happens if you borrow without telling the lender

If you borrow money for a down payment and do not disclose it to the lender, you are committing mortgage fraud. Lenders verify down payment sources as part of the underwriting process — they ask for bank statements and sometimes contact the source of large deposits. If they discover you borrowed the down payment, they can deny the mortgage entirely, even after you have been approved.

If the fraud is discovered after closing, the lender can demand when ready repayment of the loan or take legal action. This is rare but it happens, and the consequences are severe. It is far better to disclose the borrowed funds upfront and either find a lender who will accept them, use a different source, or adjust your offer price to lower the down payment amount.

Alternatives if borrowing is not an option

If you cannot borrow for a down payment and do not have family who can gift you money, you have other choices. You can lower the offer price on the home, which lowers the down payment amount in dollar terms. You can look for homes in a lower price range. You can wait and save more of your own money before buying.

Some first-time buyer programs allow down payments as low as 3 percent with an FHA loan, or even lower with certain state programs. A lower down payment means a higher monthly payment and mortgage insurance, but it gets you into a home sooner. Compare the cost of waiting and saving against the cost of a higher payment now.

Frequently Asked Questions

Can I borrow from a credit card or personal loan for a down payment?

Most mortgage lenders will not approve a mortgage if the down payment came from a credit card or personal loan. They will see the new debt on your credit report during underwriting and either deny the mortgage or require you to pay off the loan first. If you do not disclose it, it counts as fraud.

What if my family member wants to co-sign the mortgage instead of giving a gift?

Co-signing the mortgage is different from gifting a down payment. If a family member co-signs, they are legally responsible for the entire loan if you do not pay. This affects their credit and their ability to borrow. A gift is cleaner — they give you money, you use it for the down payment, and they have no further obligation. Ask your lender which option they prefer.

Do I have to report a gift to the IRS?

Gifts for down payments do not count as income to you, so you do not owe income tax on them. The family member who gives the gift may have to file a gift tax form if the amount exceeds the annual limit (which changes yearly), but they typically do not owe tax unless they have given away a very large amount over their lifetime. A tax professional can advise on your specific situation.

Can I use a home equity line of credit from another property as a down payment?

Some lenders will accept this because the money is secured by real estate you already own, not an unsecured personal loan. However, you will have two loans against your properties, and the lender will factor both into your debt-to-income ratio. Ask the mortgage lender upfront whether they accept this source.

What if I have a 529 college savings plan — can I use that for a down payment?

A 529 plan is designed for education expenses. If you withdraw money for a down payment, you will owe income tax and a 10 percent penalty on the earnings portion. The principal you contributed can usually come out penalty-free, but the earnings are taxed. This is expensive compared to other options — talk to a tax professional before doing this.