The mechanics of getting money to the seller

A down payment moves in two stages: first you gather the money and prove where it came from, then you wire it to an escrow account a day or two before closing. The seller never touches your money directly. Instead, a title company or attorney holds it in a trust account until the sale closes, at which point it gets applied to your purchase price and the remainder goes to the seller's proceeds.

The timing matters because your lender will ask for a final verification of funds — a bank statement showing the money actually exists in your account — within 48 hours of closing. If you move money around after that point, you may need to document where it came from and wait for it to clear, which can delay closing by days.

Most down payments range from 3 to 20 percent of the purchase price, though the exact amount you need depends on your loan type and the lender's requirements. A conventional loan typically requires at least 3 percent down; FHA loans allow 3.5 percent; VA loans allow zero down if you are a may have access to veteran.

Key Takeaways

  • Your lender will request a bank statement showing your down payment funds within 48 hours of closing, so the money must be in your account and cleared by then.
  • Down payment money goes to an escrow account held by a title company or attorney, not directly to the seller, and stays there until closing.
  • Gifts from family members are allowed by most lenders but require a signed gift letter stating the money does not need to be repaid and a bank statement showing it arrived in your account.
  • Large deposits made shortly before closing will trigger questions from your lender about their source; plan your transfers at least 30 days ahead if possible.
  • Wire transfers to escrow typically happen one business day before closing and must go to the exact account the title company provides in writing.

Gathering the money: savings, gifts, and what lenders will accept

Your own savings is the simplest source. The lender will ask for two months of recent bank statements showing the balance, and as long as the money has been in the account for at least 60 days, there are no questions. If you have been saving for years, this is straightforward.

Gifts from family members are allowed by most lenders, including FHA and conventional programs, but they come with paperwork. The person giving you the money must sign a gift letter stating the amount, that it is a gift and not a loan, and that they expect no repayment. You will also need a bank statement showing the gift arrived in your account. Some lenders require the gift to clear (usually 3 to 5 business days) before they will count it toward your down payment.

Retirement account withdrawals are possible but expensive. If you withdraw from a 401(k) before age 59½, you typically owe a 10 percent penalty plus income tax on the amount withdrawn. Some plans allow loans against your balance instead, which avoids the penalty but creates a monthly repayment obligation that lenders factor into your debt-to-income ratio. An IRA withdrawal under the first-time homebuyer exception allows up to $10,000 lifetime without the early withdrawal penalty, though you still owe income tax.

Selling stocks or bonds works, but the proceeds take 2 to 3 business days to settle in your bank account. If you are close to closing, sell early enough that the money clears before your lender's final verification important date.

Borrowing against a home equity line of credit (HELOC) or taking a personal loan both add to your debt load, which lenders measure as your debt-to-income ratio. This can reduce the amount you are approved to borrow for the mortgage itself, so check with your lender before taking on new debt.

The lender's verification process and timing

Once you are under contract, your lender will order a verification of funds (VOF) from your bank. This is a formal request, not a bank statement you print yourself. Your bank sends it directly to the lender and confirms the balance as of a specific date. The lender typically requests this 10 to 14 days before closing.

If you have moved money between accounts, made large deposits, or withdrawn cash, the lender will ask for an explanation and possibly a second bank statement. Large deposits made within 60 days of closing are flagged automatically. You will need to provide documentation — a gift letter if it was a gift, a pay stub if it was a bonus, a settlement statement if it came from selling a car.

The final verification of funds happens 24 to 48 hours before closing. Your lender pulls a fresh bank statement to confirm the down payment money is still there and has not moved. This is why you should not transfer money to escrow until the title company gives you explicit wiring instructions, usually the day before closing. Moving money too early can trigger new questions about where it went.

Wiring the down payment to escrow

The title company or attorney handling the closing will send you wiring instructions, usually by email, one business day before closing. These instructions include the exact bank account number, routing number, and wire amount. Do not wire to any account until you have received these instructions in writing from the title company directly. Scams involving fake wiring instructions are common enough that title companies now send them twice — once by email and once by phone call — to confirm.

Wire transfers through your bank typically cost $15 to $30 and take one business day to arrive. If you are closing on a Friday, wire on Thursday. If you are closing on a Monday, wire on Friday (the wire will arrive Monday morning). Do not wire on the day of closing itself unless the title company explicitly tells you to.

Keep the wire confirmation number your bank gives you. If the money does not arrive by the time you are supposed to close, you will need this number to track it down. In rare cases, a wire gets delayed or sent to the wrong account, and the confirmation number is how your bank traces it.

Some lenders and title companies allow you to bring a cashier's check to closing instead of wiring. A cashier's check is safer in some ways — you control when it arrives — but slower if you need to obtain it. If you choose this route, get the check at least one business day before closing and bring it to the closing appointment.

Down payment information programs and where the money comes from

Some employers, nonprofits, and government programs offer down payment information — money that goes directly to your down payment or closing costs. These programs vary widely by location and employer, so there is no single place to search all of them. Your mortgage lender can tell you which programs they work with in your state.

Employer programs often require you to have worked there for a minimum period (commonly one to two years) and may cap the amount at $5,000 to $25,000. The money usually goes directly to escrow, not to you, so it does not require the same verification process as your own funds.

Nonprofit and government programs may require you to take a homebuyer education course, which typically costs $50 to $150 and takes 4 to 8 hours. Some programs are income-based and only serve borrowers below a certain threshold. Others are first-time homebuyer programs that require you to have not owned a home in the past three years.

If you receive down payment information, your lender will ask whether it is a gift (no repayment required) or a loan (repayment required). This affects your debt-to-income ratio and the amount you can borrow. Ask the program administrator for documentation stating whether the information is a gift or a loan before you explore for the mortgage.

What happens if you do not have the full down payment yet

If you are short on funds before closing, you have a few options. You can ask the seller to credit you money at closing — this is called a seller concession — though sellers are more likely to agree if the market favors them. You can increase your loan amount if your lender will approve it, though this means a larger monthly payment and more interest over time. You can delay closing until you have saved more, though this requires the seller to agree to postpone.

Some lenders allow a smaller down payment in exchange for a higher interest rate or mortgage insurance premium. FHA loans, for example, require mortgage insurance if you put down less than 10 percent, which adds to your monthly payment. Conventional loans require private mortgage insurance (PMI) if you put down less than 20 percent. Both of these insurance products protect the lender, not you, and you can remove them once you have built enough equity.

If you are very close to closing and realize you are short, contact your lender when ready. Closing delays are expensive and can fall through entirely, but lenders sometimes have options you have not considered.

Frequently Asked Questions

Can I use a credit card to fund my down payment?

No. Lenders explicitly prohibit down payments funded by credit card debt because it increases your debt-to-income ratio and signals financial stress. If you charge the down payment to a card, the lender will see the new debt when they pull your credit report before closing and may deny the loan.

What if I receive a large bonus or inheritance right before closing?

Document it. If the bonus came from your employer, provide a pay stub or letter from your employer stating the amount and date. If it is an inheritance, provide a copy of the will or estate document. Your lender will ask for this documentation automatically when they see a large deposit, so have it ready.

Do I need to report the down payment to the IRS?

No. Down payments are not taxable income. If someone gives you money as a gift for the down payment, the giver may owe gift tax if the amount exceeds $18,000 per year (as of 2024, though this changes annually), but you do not owe tax on receiving it. The gift letter your lender requires is for the lender's purposes, not the IRS.

What if the wire transfer fails or arrives late?

Contact your bank when ready with the wire confirmation number. Your bank can trace the wire and determine whether it was sent to the wrong account or is delayed in the system. Most wires arrive within one business day; if yours does not, the bank can usually locate it within 24 hours. Notify your title company and lender at the same time so they know to expect a delay.

Can I borrow the down payment from a friend instead of a family member?

Yes, but it must be documented as a loan, not a gift. You will need a promissory note stating the loan amount, interest rate (if any), and repayment terms. Your lender will count this loan as debt when calculating your debt-to-income ratio, which may reduce the mortgage amount you can borrow. Some lenders require the loan to be paid off before closing.