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

Down payment money comes from four places: cash you have saved, a loan from a family member, a gift from someone who doesn't expect repayment, or a combination of these. Most buyers use their own savings first, then ask family if they need more. Some programs let you borrow part of the down payment instead of saving it all upfront, though you'll pay interest on that borrowed portion.

The source matters because lenders have different rules about where money can come from. A gift from a relative is usually fine. A loan from a friend or family member often requires paperwork showing it's a loan, not a gift. Money from your employer, a government program, or a nonprofit may have restrictions on how you use it. Lenders want to know the money is actually yours and not borrowed from somewhere else without their knowledge.

Key Takeaways

  • Your own savings is the simplest source—lenders ask no questions about money that's been in your account for at least two months.
  • Family gifts are allowed but usually require a signed gift letter stating the money is a gift, not a loan you'll repay.
  • Family loans work but need a promissory note showing the terms, and some lenders won't count them toward your down payment if you're also borrowing from them for the mortgage.
  • Employer down payment assistance, nonprofit grants, and government programs exist but vary by location and job—check with your employer's HR department or a local housing nonprofit first.
  • Borrowed money from credit cards, personal loans, or other lenders usually disqualifies you because it increases your debt and lowers how much a mortgage lender will give you.

Using your own savings

Money in your bank account is the cleanest source. Lenders typically ask to see bank statements from the last two months to confirm the money is there and has been there long enough that it's clearly yours. If you've had the money for at least two months, most lenders won't question it further.

If you're pulling money from a retirement account like a 401(k) or IRA, the rules change. Some plans let you borrow against your balance without tax penalties. Others let you withdraw money penalty-free for a first home purchase, but you may still owe income tax on the withdrawal. Talk to your plan administrator or a tax professional before you touch retirement money—the tax bill can be substantial.

Money market accounts, certificates of deposit (CDs), and investment accounts all count as your savings. If you need to sell investments to get cash, do it at least a few days before you need the money so the transaction clears and the cash sits in your bank account. Lenders want to see the money settled, not pending.

Accepting a gift from family or friends

A gift is money someone gives you with no expectation of repayment. Lenders allow gifts, but they need proof it's actually a gift and not a loan you'll secretly repay. The proof is a gift letter—a signed statement from the person giving you the money that says it's a gift, not a loan.

The gift letter should include the giver's name and relationship to you, the amount of money, and a statement that no repayment is expected. Some lenders have a template you can use; others accept any letter that covers these basics. The giver may need to sign it in front of a notary, depending on your lender's rules.

The money still needs to reach your bank account before closing. If someone hands you cash, deposit it and wait for it to clear—usually three to five business days. Lenders will ask where large deposits came from, so having the gift letter ready prevents delays.

There's no limit on how much you can receive as a gift for a down payment. However, if the gift is large enough to trigger tax reporting (currently $18,000 per person per year, though this changes annually), the giver may need to file a gift tax form. This is a reporting requirement, not a tax bill in most cases, but the giver should know it's possible.

Borrowing from family with a promissory note

A family loan is money you borrow and promise to repay. Unlike a gift, you owe the money back. Lenders allow family loans, but they need to see the terms in writing—a promissory note that spells out the amount, the interest rate (if any), and the repayment schedule.

The promissory note protects both you and the lender. It shows your mortgage lender that the money is a loan, not a gift, and it shows your family member that you're serious about repaying them. Without it, your mortgage lender may assume you're hiding a debt, which can disqualify you.

Here's the catch: if you're borrowing from a family member to cover part of your down payment, and you're also borrowing from a mortgage lender for the rest, some mortgage lenders won't count the family loan as part of your down payment. They see it as additional debt you're taking on, which lowers how much they'll lend you. Ask your mortgage lender upfront whether a family loan will affect your approval or loan amount.

The repayment schedule matters. If the promissory note says you start repaying the family loan right away, your mortgage lender will factor that monthly payment into your debt-to-income ratio, which can reduce your mortgage approval. If the note says repayment starts after the mortgage is closed, or after a certain date, mention that to your lender.

Employer down payment assistance programs

Some employers offer down payment help as part of their benefits package. This might be a grant (money you don't repay), a loan with favorable terms, or a matching program where the employer matches what you save. The rules vary widely by company.

Start by asking your HR or benefits department whether a down payment program exists. If it does, they'll explain what you need to do, what documentation is required, and whether there are restrictions on where you can buy or how much you can borrow. Some programs only work with certain lenders or in certain areas.

Employer assistance is often treated as a gift or grant by mortgage lenders, meaning it doesn't count against you as debt. But confirm this with both your employer and your mortgage lender before you commit to the program.

Nonprofit and government down payment programs

Nonprofits and government agencies in your state or city may offer down payment grants or low-interest loans for first-time homebuyers or buyers in certain income ranges. These programs vary by location and change over time, so there's no single list that's always current.

Start by contacting your local housing authority or a nonprofit housing organization in your area. You can also search online for "[your state] down payment assistance" or "[your city] first-time homebuyer program." Some programs are run by your state housing finance agency; others are run by local nonprofits.

These programs often have income limits, purchase price limits, or requirements that you take a homebuyer education course. Some require you to work with a specific lender. Read the full terms before you apply, because some programs have restrictions on reselling the home or requirements to repay the grant if you sell within a certain number of years.

What not to do: borrowed money that disqualifies you

Do not borrow down payment money from credit cards, personal loans, or other lenders without telling your mortgage lender first. When you apply for a mortgage, the lender pulls your credit report and sees all your debts. If you suddenly took out a $20,000 personal loan, they'll see it and may deny your mortgage or reduce the amount they'll lend you.

The reason is simple: borrowed money increases your debt-to-income ratio. Your mortgage lender calculates how much of your monthly income goes to debt payments. If you're already borrowing for the down payment, you have less borrowing power left for the mortgage itself.

If you need more money than you have saved or can receive as a gift, talk to your mortgage lender about options before you borrow elsewhere. Some lenders offer down payment assistance programs. Others can work with you on a lower down payment percentage, which means a higher loan amount but no extra borrowing on your part.

Frequently Asked Questions

Can I use a personal loan or credit card to pay for my down payment?

Not without telling your mortgage lender first. Taking out a personal loan or running up credit card debt increases your debt-to-income ratio, which usually lowers how much a mortgage lender will approve you for. Some lenders will work with you if you disclose it upfront; others will deny your application. Always ask before you borrow.

What if I don't have enough for the full down payment?

You have options: put down less money and borrow more through the mortgage (which means a higher loan amount and monthly payment), look for a down payment assistance program in your area, ask family for a gift, or delay buying until you've saved more. Some first-time buyer programs accept down payments as low as 3 percent.

Do I need to show proof that money is mine before I close?

Yes. Your lender will ask for bank statements showing the down payment money in your account, usually within a few days of closing. If you received a gift, have the gift letter ready. If you borrowed from family, have the promissory note. Large deposits that appear suddenly will be questioned.

Can I borrow down payment money from my 401(k)?

Many 401(k) plans let you borrow against your balance, and some let you withdraw money penalty-free for a first home purchase. However, you may owe income tax on the withdrawal, and you'll lose the growth on that money. Talk to your plan administrator and a tax professional before you withdraw—the tax bill can be significant.

What happens if the person giving me a gift wants it back later?

If it was truly a gift, they have no legal claim to it. But if they later say it was a loan, you could face a family conflict or a lawsuit. This is why a gift letter is important—it documents that both of you agreed it was a gift at the time. If you're unsure about the giver's intentions, treat it as a loan and use a promissory note instead.