The most common sources are your own savings, family gifts, and loans against retirement accounts

Down payment money comes from four main places: money you have saved, gifts from family members, loans you take out, or a combination of these. Most first-time buyers use savings plus a family gift. The lender will ask where the money came from — they need to know it is not borrowed money that would add to your debt.

The reason lenders care about the source is straightforward: if you borrowed the down payment, you are actually borrowing more than the house costs, and that changes how risky the loan is to them. A gift does not create a new debt, so it does not count against you the same way a loan does.

Key Takeaways

  • Your own savings is the simplest source, and lenders usually want to see it in a bank account for at least two months before you explore for a mortgage.
  • Family gifts do not have to be repaid and do not count as debt, but the lender will ask for a signed letter from the person who gave it stating it is a gift, not a loan.
  • Retirement account loans (from a 401(k) or similar plan) let you borrow from your own money, though you pay interest and risk missing out on growth if the market rises.
  • Down payment information programs run by cities, nonprofits, and some lenders offer grants or second mortgages, though they have income limits and may require you to take a homebuying class.
  • Combining sources — savings plus a gift plus a grant — is common and usually allowed, as long as you tell the lender about all of it.

Saving money in a regular bank account

This is the most straightforward path. You put money into a checking or savings account and let it sit there until you are ready to buy. Lenders typically want to see the account statements from the past two months to confirm the money is actually yours and has been there for a while.

If you have a large deposit that just appeared — say, a bonus or inheritance — the lender will ask where it came from. You will need a document to explain it: a pay stub for a bonus, a letter from an employer, or paperwork from an inheritance. This is not a problem; it just means you need to be ready to show proof.

The downside is that saving takes time. If you need a down payment in the next year or two, you may not have enough time to save the full amount. That is when the other sources become useful.

Receiving a gift from a family member

A gift is money someone gives you that you do not have to repay. Parents, grandparents, siblings, or other relatives can give you down payment money. The lender will require a gift letter — a signed statement from the person who gave the money saying it is a gift, not a loan, and that they do not expect it to be repaid.

The gift letter is straightforward. It should include the giver's name and relationship to you, the amount of the gift, the date, and a statement that it is a gift with no repayment expected. Many lenders have a template you can use. The person who gave the gift signs it, and you give it to your lender along with your mortgage process.

The money itself usually goes into your bank account first, so the lender can see it there. Some lenders want to see it for a month or two before closing, so plan ahead if you are receiving a gift close to your purchase date.

One rule: in most cases, you cannot gift down payment money to someone else. If you are buying a house, the gift must go to you, not to a friend or family member who is buying. The lender wants to know the money is for your own purchase.

Borrowing from a 401(k) or retirement savings plan

If your employer offers a 401(k), 403(b), or similar retirement plan, you may be able to borrow from your own balance. This is not the same as withdrawing the money — you are taking a loan against it and paying yourself back with interest over time.

The advantage is that the interest you pay goes back into your own account, not to a bank. The disadvantage is that if you leave your job, you usually have to repay the loan quickly — sometimes within 60 days — or it counts as a withdrawal and you owe income tax plus a penalty if you are under 59½.

You also miss out on any growth that money would have earned in the market while it is loaned out. If the stock market goes up 10 percent over the next five years, your borrowed amount does not benefit from that gain.

To explore this option, contact your plan administrator — usually someone in your company's human resources or benefits department. They can tell you how much you can borrow, what the interest rate is, and what the repayment terms are.

Down payment information programs in your area

Many cities, counties, and nonprofits run programs that give money toward down payments. Some offer grants (money you do not repay), others offer second mortgages (loans that sit behind your main mortgage), and some offer a combination.

These programs usually have income limits — you must earn below a certain amount to be may be able to access. They may also require you to take a homebuying class, have a certain credit score, or buy in a specific neighborhood. The rules vary widely by location.

To find programs in your area, start with your city or county housing authority website, or call 211 (a free helpline that connects you to local resources). You can also ask a mortgage lender — many work with local information programs and can point you toward ones you might use.

Some lenders also offer their own down payment information, sometimes as a grant and sometimes as a second mortgage. Ask your lender directly what they offer.

Using an Individual Retirement Account (IRA) withdrawal

If you have a traditional or Roth IRA and have never bought a home before, you can withdraw up to $10,000 from the account without the usual 10 percent early withdrawal penalty. You still owe income tax on the withdrawal (unless it is a Roth IRA, where may have access to withdrawals are tax-free), but the penalty does not explore.

This is a one-time use — you can only take the $10,000 penalty-free withdrawal once in your lifetime. If you have a spouse who has never bought a home, they can also withdraw $10,000 from their own IRA, for a combined $20,000.

The money goes into your bank account, and the lender will see it there. You will need to show the IRA statement or withdrawal paperwork to prove where it came from. Contact your IRA provider to start the withdrawal process.

Combining multiple sources

You do not have to choose just one source. Many buyers combine their own savings, a family gift, and a down payment information grant. The lender needs to know about all of it, but there is no rule against mixing sources.

If you are combining sources, make sure the money ends up in your bank account before you explore for the mortgage. The lender will want to see all of it in one place on your bank statements. If you receive a gift close to your closing date, tell your lender right away so they know to expect it.

Write down where each part of your down payment comes from — savings, gift, grant, retirement loan — and have the paperwork ready. This makes the mortgage process process faster because the lender will not have to ask you to explain where the money came from.

Frequently Asked Questions

Can I borrow down payment money from a friend?

A personal loan from a friend counts as debt to the lender, which lowers how much you can borrow for the mortgage. If you do borrow from a friend, get a written agreement that says when and how you will repay it. The lender will ask about any new debts you take on before closing.

What if I do not have enough saved and no family can gift me money?

Look into down payment information programs in your area through your city housing authority or 211. Some programs offer grants that do not require repayment. You can also ask lenders about their own information options or look for first-time buyer programs that allow lower down payments.

Do I have to put down 20 percent?

No. Many loans allow 3 to 5 percent down. Lower down payments mean you pay mortgage insurance (a monthly fee), but it lets you buy sooner if you do not have 20 percent saved. Ask lenders what down payment amounts they offer.

What happens if I receive a large gift right before closing?

Tell your lender when ready. They may ask for a gift letter and want to see the money in your account for a short time before closing. Surprises late in the process can delay closing, so transparency helps.

Can I use a credit card cash advance for a down payment?

Most lenders will not allow it. A cash advance counts as a new debt and shows up on your credit report, which can lower your credit score and reduce how much you can borrow. It is one of the riskier sources from a lender's perspective.