Can You Get a Loan for a Down Payment on a House?
If you’re short on funds for your down payment, there are a few borrowing options, such as special second mortgage programs for first-time homebuyers, that allow you to take out a loan for the down payment on a house.
For first-time homebuyers, the median down payment was 10% in 2025, according to the National Association of Realtors (NAR). Considering the current median sales price of new homes, a typical down payment for a first-time buyer can easily be over $40,000.
If saving enough for your down payment is preventing you from becoming a homeowner, this guide will walk you through your down payment loan options.
- There are some loan options for down payments, including down payment assistance programs, bridge loans and home equity loans
- Taking out a loan for your down payment can make it harder to qualify for a mortgage.
- Other options include no- or low-down payment mortgage programs and homebuyer grants.
6 ways to borrow money for a down payment
| Loan option | Key features | Who is it best for? |
|---|---|---|
| Homebuyer assistance loan | Usually low-interest and deferred repayment | First-time homebuyers |
| Home equity loan or HELOC | Secured loan with competitive rates | Existing homeowners |
| Bridge loan | Short-term loans | Existing homeowners in competitive housing markets |
| Retirement account loan | Penalty-free withdraws | Homebuyers with established retirement accounts |
| Loan from a friend or relative | Low-interest loans | Borrowers with other assets that can serve as collateral, such as a vehicle |
| Personal loan | Unsecured loans repaid over two to seven years | Homebuyers with excellent credit |
1. Homebuyer assistance loan
Some states and financial institutions have specialized homebuyer assistance loans that act as second mortgages to help cover the down payment and/or closing costs. For example:
- Connecticut Housing Finance Authority(CHFA): Through CHFA, homebuyers may qualify for a loan of up to $15,000 to put toward down payments or closing costs, with an annual percentage rate (APR) no higher than 5.50%.
- Florida Assist: Through the Florida Assist program, borrowers may qualify to borrow up to $10,000 as a second mortgage for a home’s down payment. The loan has an APR of 0%, and repayment is deferred until the home is sold or refinanced or until the mortgage is paid in full.
- Iowa Economic Development & Finance Authority: Through Iowa’s FirstHome program, homebuyers may be eligible for a loan of up to 5% of the home’s sales price for the down payment or closing costs. Borrowers repay the loan when the home is sold or when the mortgage is refinanced or paid in full.
Visit your state housing authority to find similar programs in your area.
2. Home equity loan or HELOC
If you currently own a home, you can convert your equity into cash with a home equity line of credit (HELOC) or home equity loan and use the funds for your down payment on a new home. This may come in handy if you find a great deal on a new home, but you haven’t sold your current home and need cash to make a larger down payment.
HELOC
A HELOC is a revolving credit line that works like a credit card. When you use a HELOC for a down payment, you can:
- Use as much (or as little) of the credit line as you need during the draw period, which usually lasts 10 years
- Pay down the balance to zero and charge it again during the draw period
- Pay interest only on your outstanding balance
Home equity loan
With a home equity loan, you’ll receive the entire loan balance in a lump sum and make monthly installment payments based on your interest rate and chosen repayment term. Most home equity loan terms are five to 30 years.
3. Bridge loan
A bridge loan is a short-term mortgage that allows you to borrow from the equity in your current home to use toward a new home purchase. Bridge loans come in handy if you’re in a competitive housing market where sellers won’t accept an offer conditional on the sale of your current home.
With a bridge loan, you can usually borrow up to 80% of your current home’s value. You’ll pay off your outstanding loan balance and use the extra cash as a down payment on the house you’re buying.
4. Retirement account loan
You can tap into your retirement savings to cover your down payment. Usually, you can take out a 401(k) loan without any impact to your credit or without incurring penalties, but you’re typically limited to $50,000 or 50% of your account balance, whichever is less.
This approach has some risks. When you take money out of your retirement account, there is less money to grow on a tax-deferred basis, leaving you with less cash in retirement.
Talk to your financial planner or accountant to discuss how a 401(k) loan or account distribution may impact you.
5. Loan from a friend or relative
If you have a friend or family member willing to lend you the money for a down payment — but expects it to be repaid — the loan must be secured by your assets (other than the property you plan on purchasing). Mortgage lenders will require you to provide documentation verifying the value and ownership of the asset securing the loan, and evidence of the receipt of loan funds.
6. Personal loan
A personal loan is an unsecured installment loan. You receive the loan funds upfront in a lump sum, and you repay the loan in monthly installments over a set term, such as two to seven years.
If you think you’ll need to borrow a personal loan to cover your down payment, it may make sense to postpone buying until you’ve had an opportunity to save for a house. Trimming expenses and setting money aside each month can go a long way. You can also focus on improving your credit score during this time to help you qualify for lower rates.
How borrowing money for a down payment affects mortgage approval
Although it’s possible to borrow money for a down payment, there are some drawbacks to keep in mind:
- Taking out a loan can hurt your credit: When you take out a new loan, the lender will perform a hard credit inquiry, which can cause your score to drop. And a new loan can affect your credit mix and length of credit history, which can also impact your credit.
- It raises your debt-to-income (DTI) ratio: Lenders consider your DTI ratio, or how much of your income goes toward monthly debt payments. A new loan can raise your DTI, making it more difficult to qualify for a mortgage.
- Money needs to be seasoned: To be an allowable deposit for use as a down payment or cash reserves, mortgage lenders require your cash to be “seasoned.” Although the specific requirements vary by lender, you typically need to have the money in your account 60 to 90 days before it can be used. If you plan on taking out a loan, that means you’d have to take out the loan several months before you begin the mortgage application process.
Pros and cons of borrowing money for a down payment
Pros
- Quick purchasing power: Using a loan for a down payment allows you to buy a home now, rather than waiting until you’ve saved more cash.
- Potential to build equity sooner: Borrowing money could allow you to buy a home and start building equity now rather than continuing to rent.
- Hold onto cash: Taking out a loan to cover the down payment could allow you to keep more cash on hand for moving costs, repairs or emergency expenses.
Cons
- Raises DTI: A higher DTI can make it difficult to qualify for a mortgage.
- Higher monthly payments: Repaying the down payment loan on top of your mortgage can put extra stress on your budget.
- Higher interest rates: Some down payment loans, such as personal loans, can have interest rates in the double digits, so you’ll pay more in interest over time.
Should you borrow money for a down payment?
If you have to borrow money for a down payment, it may be a sign that you can’t afford the home you’re considering. However, financing a down payment may make sense in the following situations:
- You’re in the process of selling a home: You’ve accepted an offer for your current home’s purchase, but it won’t close before you buy your new home.
- You have additional assets: You have plenty of extra assets to pay off the down payment loan if needed.
- You have extra cash flow: You have ample room in your budget to afford the extra monthly payments.
When borrowing for a down payment may not make sense
Taking out a loan for a down payment may not make sense if:
- Your budget is tight: A mortgage is an added expense, so another loan could leave too little space for unexpected expenses or home repairs.
- Your DTI is already high: Mortgage lenders use your DTI to determine your eligibility for a mortgage. If your DTI is near the mortgage lender’s maximum, another loan may push your DTI too high.
- You don’t have an emergency fund: Draining your savings and taking on too much debt can leave you in a financially vulnerable position.
Alternative ways to fund your mortgage down payment
- Look into mortgages with low down payment requirements: Some loan programs, such as Federal Housing Administration (FHA) loans, require as little as 3.5% for a down payment, while the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) loans require 0%.
- Withdraw from your retirement accounts: If you have an existing traditional, SIMPLE or Roth individual retirement account (IRA), you can withdraw up to $10,000 to use as a down payment without penalty (even if you’re under the age of 59½).
- Apply for down payment assistance: Some housing agencies, banks and credit unions have down payment assistance grants that offer upfront cash for the down payment or closing costs. Typically, these programs are for low-to-middle-income buyers or first-time homebuyers.
- Use gift funds: If you have friends or family members willing to help you buy a home, you can use contributed funds toward the down payment. Your lender will usually require documentation showing where the funds came from and confirming that the money is a gift, not a loan.
Frequently asked questions
Lenders verify your down payment source to make sure you can afford your mortgage payments. Undisclosed debt or stretching your budget too thin increases the risk of falling behind on your payments, so your lender will ask for bank statements, gift letters or loan documents to establish where the money is from.
Down payment assistance programs are often better than personal loans because they have low rates, deferred payments or may be forgivable if you live in the home for a certain length of time. By contrast, personal loans have higher interest rates and must be repaid in two to seven years.
No, borrowers cannot use a credit card for the down payment. Borrowers can use a credit card for fees associated with the mortgage process, such as origination fees or appraisal fees, but the maximum amount charged is limited to 2% of the mortgage amount or $1,500, whichever is greater.
With some mortgage programs, such as VA loans or USDA loans, you can take out a mortgage that covers up to 100% of the home, including the down payment. However, you’ll still need to cover closing costs and other upfront buying expenses.
Yes, taking out a loan can hurt your chances of qualifying for a mortgage. A new loan can increase your DTI and damage your credit, making it harder to get a mortgage. Avoid opening new credit accounts during the mortgage process.
First-time homebuyers can borrow money for a down payment through down payment assistance programs, by using a loan from a family member or friend or by taking out a loan from a retirement account. First-time homebuyers may also be eligible for grants for the down payment.
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