The most direct sources are your own savings, a gift from family, a personal loan, or a withdrawal from a retirement account—each with different costs and rules

Getting cash for a down payment means finding money you can put toward the purchase without borrowing it against the property itself. The fastest route is usually money you already have: a savings account, a checking account, or cash on hand. If you don't have enough saved, you can ask family for a gift (which lenders treat differently than a loan), take out a personal loan from a bank or online lender, borrow from your 401(k) or IRA, or sell investments you own. Each method has different timelines, tax consequences, and lender restrictions.

Key Takeaways

  • Your own savings is the cheapest option because you pay no interest and face no repayment terms, but you must have the cash available before you make an offer.
  • A family gift does not have to be repaid and does not count as debt on your loan application, but the lender will ask for a signed gift letter stating it is not a loan.
  • A personal loan from a bank or online lender gives you cash in days but adds a monthly payment that lenders will see when they calculate how much you can borrow.
  • Withdrawing from a 401(k) or IRA can be fast but triggers taxes and penalties unless you use a specific exception like the first-time homebuyer rule for IRAs.
  • Selling stocks or bonds takes a few business days to settle and may create a tax bill, but the cash is yours with no repayment obligation.

Using your own savings or checking account

Money you already have is the cleanest source. You pay no interest, take on no debt, and lenders see no new monthly payment. The catch is that you must have the cash available before you make an offer on a home, because lenders will ask for bank statements showing the funds have been there for at least two months. If you just received a large deposit, they may ask where it came from.

To prepare, gather your last two months of bank statements from every account where you hold down payment money. If you have been saving steadily, the lender will see a clear pattern. If you received a sudden deposit, be ready to explain it—a bonus, a tax refund, or a gift all require documentation. Once you are under contract, the lender will order a final verification of funds, usually within a week of closing, to confirm the money is still there.

Asking family for a gift

A gift from a parent, grandparent, sibling, or other relative does not have to be repaid and does not count as debt on your mortgage application. Lenders treat it as a genuine gift, not a loan disguised as one. The key requirement is a gift letter—a signed statement from the person giving the money that says it is a gift, not a loan, and that they expect no repayment.

The gift letter must include the giver's name, relationship to you, the amount, and a statement that the funds are a gift with no expectation of repayment. Some lenders have a template you can use; others accept any letter that covers these points. The giver does not have to be a relative, but lenders are more cautious about gifts from friends or employers and may ask more questions. Once you have the letter, the giver transfers the money to your account. You will need to show the lender the gift letter plus bank statements proving the funds arrived and have been in your account for at least two months before closing.

Taking out a personal loan

A personal loan from a bank, credit union, or online lender gives you cash in one to five business days, with no restrictions on how you use it. The downside is that the monthly payment counts as debt on your mortgage application, which reduces the amount a lender will let you borrow for the home itself. If you borrow $20,000 at $400 a month, that $400 payment will lower your approved mortgage amount.

Personal loans typically charge interest rates between 6% and 36% depending on your credit score and the lender. You can compare offers from multiple lenders in a single day using online marketplaces or by calling banks directly. Once approved, the lender deposits the money into your account, and you begin making monthly payments immediately—usually within 30 days of receiving the funds. Some lenders allow you to delay the first payment by a month or two, but this is rare and usually costs more in interest.

Before you take out a personal loan, calculate whether the monthly payment will still allow you to may have access to for the mortgage you need. Use an online mortgage calculator to see how much the new debt payment reduces your borrowing power. If the reduction is significant, a personal loan may not be the right choice.

Withdrawing from a 401(k) or IRA

A 401(k) withdrawal or IRA withdrawal can give you cash within days, but both trigger taxes and penalties unless you meet specific exceptions. The rules are different for each account type.

An IRA withdrawal for a first-time homebuyer is taxed as income but avoids the 10% early withdrawal penalty if you are under 59½. You can withdraw up to $10,000 lifetime from a traditional or Roth IRA for a first-time home purchase. You must use the money within 120 days of withdrawal. The withdrawal counts as income on your tax return for that year, which may push you into a higher tax bracket. If you withdraw $20,000, you might owe $4,000 to $6,000 in federal taxes, depending on your income and state.

A 401(k) withdrawal is more expensive. If you are still employed, most plans do not allow withdrawals unless you are facing a financial hardship, and the definition of hardship is strict—it usually does not include a down payment. If you are no longer employed, you can withdraw without penalty after age 59½, but before that age you owe a 10% penalty plus income tax on the full amount. A $20,000 withdrawal before 59½ could cost $2,000 in penalty plus $4,000 to $6,000 in taxes. Some plans allow a loan against your 401(k) balance instead, which you repay to yourself over five years with no tax hit, but you must repay it even if you leave your job.

Before withdrawing from retirement savings, talk to a tax professional or your plan administrator about the exact tax cost. The money you withdraw is gone from your retirement account and will not grow for the next 30 or 40 years, so the long-term cost is much higher than the immediate tax bill.

Selling stocks, bonds, or other investments

If you own stocks, bonds, mutual funds, or other investments outside a retirement account, you can sell them and use the proceeds for a down payment. The cash usually arrives in your account within two to three business days after the sale settles. This money is yours with no repayment obligation and no monthly payment that affects your mortgage qualification.

The trade-off is taxes. If you sell an investment at a profit, you owe capital gains tax on the gain—the difference between what you paid and what you sold it for. Long-term capital gains (investments held more than one year) are taxed at 0%, 15%, or 20% depending on your income. Short-term gains (held one year or less) are taxed as ordinary income, which can be much higher. If you sell a stock you bought for $10,000 and sell it for $15,000, you owe tax on the $5,000 gain. At a 15% rate, that is $750. At a 37% rate, it is $1,850.

Before you sell, check your cost basis (what you originally paid) and how long you have held the investment. If you are close to the one-year mark, waiting a few weeks could save you thousands in taxes. You can also use tax-loss harvesting—selling investments at a loss to offset gains—if you have other investments that are underwater. Talk to a tax professional before selling a large position.

Borrowing against your home equity

If you already own a home and have built equity, you can borrow against it using a home equity line of credit (HELOC) or a home equity loan. A HELOC works like a credit card: you draw money as you need it and pay interest only on what you use. A home equity loan is a lump sum you receive upfront. Both are secured by your home, so the interest rates are lower than personal loans—typically 7% to 12%—but if you default, the lender can foreclose.

A HELOC or home equity loan takes one to three weeks to close. You will need an appraisal of your home, proof of income, and a credit check. The monthly payment on a home equity loan is fixed; a HELOC payment varies as interest rates change. If you are planning to buy a second property or investment property, a HELOC can be a cheaper way to fund the down payment than a personal loan, but only if you have significant equity and a good credit score.

Frequently Asked Questions

Can I borrow down payment money from my employer?

Some employers offer down payment assistance programs or loans to employees, but these are rare. If your employer offers one, the money may be a gift (no repayment required) or a loan (with repayment terms). Ask your HR department whether the program exists and what the terms are. If it is a loan, the monthly payment will count as debt on your mortgage application.

What if I get a down payment gift after I have already applied for the mortgage?

Tell your lender immediately. You will need to provide a gift letter and bank statements showing the funds arrived. The lender will re-verify your finances to make sure the gift does not disqualify you or change your loan terms. Most lenders allow gifts at any point before closing, but some have cutoff dates, so ask first.

Do I have to report a cash gift to the IRS?

The person giving you the gift does not owe federal tax on gifts under $18,000 per year (as of 2024; this amount changes annually). They do not have to report it to the IRS unless they exceed this limit. You do not owe tax on the gift itself. However, your lender will ask for a gift letter, so do not try to hide the source of the money.

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

Technically yes, but it is expensive and risky. A cash advance typically charges 3% to 5% upfront plus a high interest rate (often 20% or higher). The cash advance also counts as debt on your mortgage application and will lower your borrowing power. Most lenders also view cash advances as a sign of financial stress, which can hurt your approval odds.

What happens if I do not have enough cash after I make an offer?

You will likely lose your earnest money deposit (usually 1% to 3% of the purchase price) and the deal will fall through. To avoid this, do not make an offer until you have confirmed the down payment money is available. If you are waiting on a gift, get the gift letter and proof of funds in writing before you make an offer.