The most common sources are your own savings, family loans, and down payment assistance programs run by state housing agencies or nonprofits
You have four main routes: save the money yourself, borrow from family, use a down payment assistance program, or combine two or three of these. Which one works depends on how much you need, how fast you need it, and whether you may have access to for programs in your state. Most people use a mix—some savings plus a family gift, or savings plus an assistance program.
The fastest source is usually family money, which can arrive in days. Assistance programs take longer (four to eight weeks) but don't require repayment. Saving on your own takes the longest but gives you full control and no strings attached.
Key Takeaways
- Family gifts and loans are the fastest source and require no credit check, but lenders will ask where the money came from and may require a signed gift letter if it's a gift rather than a loan.
- Down payment assistance programs exist in most states and cover 2 to 25 percent of the purchase price, but have income limits and require you to complete a homebuyer education course.
- Retirement accounts like a 401(k) or IRA allow you to withdraw money penalty-free for a first home purchase, but the withdrawal counts as income and may affect your tax return.
- Employer down payment programs, credit union loans, and personal loans are less common but worth asking about if you work for a large company or belong to a credit union.
- Lenders verify the source of every dollar in your down payment, so you need documentation—bank statements, gift letters, loan agreements—before you apply for a mortgage.
Down payment assistance programs: what they cover and who runs them
Most states run down payment assistance through their housing finance agency or a network of nonprofits. These programs typically cover 2 to 25 percent of the purchase price, depending on the program and your income. Some are grants (you don't repay), others are forgivable loans (you repay only if you sell within a set time), and some are second mortgages (you repay over time).
To find programs in your state, start with the National Council of State Housing Agencies (NCSHA) website, which lists every state's housing finance agency. You can also search HUD.gov for programs by ZIP code. Many programs require you to complete a homebuyer education course before you apply—this usually takes four to eight hours and covers budgeting, credit, and the mortgage process.
Income limits vary widely. Some programs serve households up to 80 percent of area median income; others go up to 120 percent. You'll need proof of income (recent pay stubs or tax returns), a credit report, and a pre-approval letter from a lender showing you can afford the mortgage itself.
Borrowing from family: what lenders need to see
A family loan or gift is often the fastest way to get down payment money. If it's a gift, the lender will ask for a gift letter signed by the person giving you the money, stating the amount and that it does not need to be repaid. If it's a loan, you need a written agreement showing the amount, interest rate (if any), and repayment terms.
Lenders verify the source of down payment money by reviewing your bank statements for the past two months. They want to see the money arrive and sit in your account for at least two days before closing. If money appears suddenly without explanation, the lender may ask for a letter from the source explaining where it came from.
If your family member is also on the mortgage (co-borrowing), their income and debts count toward your debt-to-income ratio, which can lower the amount you're approved to borrow. If they're only giving you a gift, they stay off the loan entirely.
Withdrawing from retirement accounts: 401(k) and IRA rules
The IRS allows first-time homebuyers to withdraw up to $35,000 from a Roth IRA without the 10 percent early withdrawal penalty. You can withdraw up to $10,000 from a traditional IRA penalty-free (but you still owe income tax on the withdrawal). A 401(k) has no specific first-time homebuyer exception, but many plans allow loans against your balance—you borrow from yourself and repay through payroll deductions.
The catch: any withdrawal from a traditional IRA or 401(k) counts as income in the year you withdraw it. This can push you into a higher tax bracket and may reduce your mortgage approval amount because lenders look at your income when calculating how much you can borrow. A Roth IRA withdrawal avoids this problem because Roth withdrawals don't count as income.
Before you withdraw, check your plan's rules. Some 401(k)s don't allow loans, and some require you to repay within a set time or face taxes and penalties. Talk to your plan administrator or tax preparer before you withdraw anything.
Personal loans and credit union options
A personal loan from a bank or online lender can cover a down payment, but it counts as debt when the lender calculates your debt-to-income ratio. This means taking out a $30,000 personal loan can reduce the mortgage amount you're approved for by $100,000 or more, depending on the interest rate and your income.
Credit unions often offer better rates on personal loans than banks, and some have specific down payment loan programs. If you belong to a credit union, ask whether they offer down payment loans or whether they'll work with you on timing—some credit unions will hold off on reporting the loan to credit bureaus until after your mortgage closes, which can help your approval.
Employer down payment programs exist at some large companies. Google, Amazon, and some government agencies offer down payment assistance to employees. Check your HR benefits portal or ask your benefits administrator whether your employer has a program.
Saving on your own: timelines and realistic targets
Saving takes the longest but gives you the most control. How long depends on your income and how much you need. If you earn $60,000 a year and can save $500 a month, you'll have $6,000 in a year—enough for a 3 percent down payment on a $200,000 home. If you need $20,000 (10 percent down), it takes 40 months.
Open a high-yield savings account (currently paying 4 to 5 percent annual interest) rather than a regular savings account. The difference is small on small balances but adds up over time. Set up automatic transfers from your checking account to your savings account on payday, so the money moves before you can spend it.
Lenders will ask to see your savings account statements for the past two months, so keep your down payment money in one account and don't move it around. Large, unexplained deposits can trigger questions about where the money came from.
What lenders verify and what documents you need
Every lender verifies the source of your down payment before closing. You'll need to provide bank statements showing the money in your account, and if the money came from somewhere other than your paycheck, you need documentation of where it came from. Here's what to gather:
- Bank statements for the past two months showing your down payment money
- A gift letter (if money is a gift from family)
- A loan agreement (if money is a loan from family)
- Proof of the source (pay stubs, tax returns, retirement account statements, or a letter from the person giving you the money)
- Documentation of any assistance program you used (award letter, grant agreement)
If you're combining sources—say, $10,000 from savings, $15,000 from a family gift, and $10,000 from an assistance program—you need documentation for all three. Lenders want to see that you have "skin in the game" (your own money at risk), so most require at least some of the down payment to come from your own funds or a gift, not entirely from a loan.
Frequently Asked Questions
Can I use a credit card to pay for a down payment?
No. Lenders explicitly prohibit using borrowed money (including credit card cash advances) for a down payment. They verify the source of every dollar, and a credit card advance will show up as a new debt on your credit report, which can disqualify you or lower your approval amount.
What if I don't have enough saved and my family can't help?
Look for down payment assistance programs in your state first—many cover 5 to 15 percent of the purchase price and have no repayment requirement. If you don't may have access to for those, ask about first-time homebuyer loans (which are personal loans designed for down payments) or whether your employer offers a program. Some lenders also offer 97 or 98 percent LTV mortgages that require only 2 or 3 percent down.
Does a gift from family count as income?
No. A gift does not count as income for tax or mortgage purposes. A loan from family does not count as income either, but it does count as a debt, which affects how much you can borrow. Make sure any family loan is documented in writing so the lender knows it's a loan and not a gift.
Can I borrow money from my 401(k) and still get approved for a mortgage?
Yes, but the loan payments count as debt. If you borrow $30,000 from your 401(k) and repay it over five years, that monthly payment reduces the mortgage amount you're approved for. A withdrawal (rather than a loan) counts as income in the year you withdraw it, which can also reduce your approval amount.
How long does it take to get down payment assistance money?
Most programs take four to eight weeks from application to funding. Some are faster (two to three weeks) if you're already pre-approved and have all documents ready. The program pays the lender or the seller directly at closing, so you don't receive the money yourself—it reduces the amount you need to bring to closing.