A home loan does not cover your down payment — the down payment is what you pay upfront to get the home loan in the first place.
The down payment is your own money, paid to the seller or held in escrow before the lender funds the mortgage. A mortgage lender will not lend you the down payment because that would mean lending you 100% of the purchase price with no equity cushion. Lenders require you to have skin in the game — typically 3% to 20% of the home's price — before they will finance the rest.
What you can do is borrow the down payment from a different source: a personal loan, a home equity line of credit if you own another property, a gift from a family member, or a down payment information program run by your state or local government. But the mortgage itself will not cover it.
Key Takeaways
- Your down payment must come from your own funds or from a separate loan before you explore for a mortgage.
- Mortgage lenders require proof that the down payment is yours — they will ask where the money came from and may require bank statements.
- Personal loans, gifts from family, and down payment information programs are common ways to fund a down payment without using your own savings.
- If you borrow the down payment through a personal loan, that debt counts against your debt-to-income ratio and may lower the mortgage amount you can borrow.
Why lenders will not lend you the down payment
A mortgage is secured by the house itself. If you stop paying, the lender forecloses and sells the property to recover their money. If you put down 10% and borrow 90%, the lender has a cushion: even if the house sells for less than the loan amount, they may recover most of it. If you put down 0% and borrow 100%, the lender has no cushion at all.
This is why lenders require a down payment and why they will not lend you that money. The down payment proves you have committed your own capital and that you have something to lose if you default. It also reduces the lender's risk on the loan, which is why larger down payments often may have access to for better interest rates.
Where you can actually get down payment money
If you do not have the down payment saved, you have several options. A personal loan from a bank or online lender is the most straightforward: you borrow a fixed amount, receive it in your bank account, and repay it over a set term. The catch is that this loan counts as debt when the mortgage lender calculates your debt-to-income ratio, which may reduce the mortgage amount you can borrow.
A gift from a family member is another route. Most lenders allow down payment gifts, but they will ask for a signed gift letter stating that the money is a gift, not a loan you have to repay. The lender wants to know your actual debt obligations.
Down payment information programs exist in most states and many cities. These are usually run by housing finance agencies or nonprofits and offer grants or low-interest loans specifically for down payments. Some programs target first-time buyers; others target low-income households or specific professions like teachers or healthcare workers. Your state housing finance agency website or a local community action agency can tell you what programs exist in your area.
If you own another property, a home equity line of credit (HELOC) or home equity loan against that property can fund your down payment. This is a second loan secured by your existing home's equity.
How lenders verify where your down payment came from
During the mortgage process, your lender will ask for bank statements covering the last two to three months. They are looking for the down payment money to appear in your account and stay there until closing. If a large deposit shows up suddenly without explanation, the lender will ask where it came from.
If the money is a gift, you will need a signed gift letter from the person who gave it. If it is a personal loan, you will need to show the loan agreement and proof that you received the funds. If it came from a down payment information program, you will need documentation from that program.
Lenders do this to prevent fraud and to understand your true financial obligations. They need to know whether the money in your account is actually yours to spend or whether you owe it back to someone else.
What happens to your down payment at closing
At closing, your down payment is credited toward the purchase price. If the house costs $300,000 and you put down $30,000, the mortgage will be for $270,000. The down payment goes to the seller (or to the seller's lender if the seller has a mortgage to pay off). You do not get it back — it becomes your equity in the home.
If you borrowed the down payment through a personal loan or HELOC, you now have two debts: the mortgage and the personal loan. You will make separate payments to each lender. If the down payment came from an information program, the terms depend on the program — some grants do not require repayment, while others are forgivable loans that you repay only if you sell the home within a certain number of years.
The cost of borrowing your down payment
If you take out a personal loan to cover the down payment, that loan has its own interest rate and monthly payment. A $30,000 personal loan at 8% interest over five years costs roughly $600 per month. That payment counts as debt when the lender calculates whether you can afford the mortgage, so it may reduce the total mortgage amount you can borrow.
Down payment information programs often have lower or no interest, but they may come with restrictions — for example, you may have to stay in the home for a certain number of years, or the program may place a lien on the property that you have to satisfy when you sell.
A gift from family has no cost and no debt impact, but it requires someone willing and able to give you the money. A HELOC uses equity you already have, so there is no new debt, but it does put your existing home at risk if you cannot repay.
Frequently Asked Questions
Can I use a credit card to pay my down payment?
Technically yes, but most lenders will not allow it. They consider credit card cash advances a form of debt and will count them against your debt-to-income ratio. Some lenders explicitly prohibit down payments funded by credit cards because of fraud concerns. Ask your lender before you charge anything.
What if I do not have enough for a down payment?
Look for down payment information programs in your state or city — many offer grants or low-interest loans for first-time buyers or low-income households. Some lenders also offer mortgages with down payments as low as 3%. A personal loan or gift from family are other options, though both have trade-offs in cost or availability.
If I borrow the down payment, will it affect my mortgage approval?
Yes. The borrowed money counts as debt on your credit report and in your debt-to-income calculation. This may lower the mortgage amount you can borrow. However, if the down payment comes from a gift or an information program, it will not affect your approval because it is not debt you have to repay.
Can I get a loan from my 401(k) to pay the down payment?
Some 401(k) plans allow loans against your balance. The advantage is that you borrow from yourself at a low rate. The disadvantage is that if you leave your job, the loan may become due when ready, and if you cannot repay it, it counts as an early withdrawal with taxes and penalties. Check your plan's rules before you proceed.
What if the down payment gift is from someone who is not family?
The lender will still require a gift letter, signed by both you and the person giving the money, stating that it is a gift and not a loan. The lender may also ask for proof that the person has the funds to give — usually a bank statement. The relationship does not matter as long as the lender can verify the money is genuinely a gift.