Can You Use a Personal Loan for a Down Payment on a House?
The short answer to the question is no. Conventional and government-backed home loans do not allow for the down payment to come from a loan of any kind.
Lenders want the down payment funds to come directly from the borrower and not have to be repaid.
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Down Payment
The down payment is a percentage of the home’s purchase price the buyer pays upfront. In 2019, the average down payment on a house with 8% for first-time homebuyers and 12% for repeat buyers.
Unfortunately, the down payment must come from your own source of funds, or it must be a gift from a family member or friend; it cannot come from a personal loan. The good news is that mortgage loans no longer require a 20% down payment. There are mortgage programs that allow for less than 5% down.
Where can Down Payment Funds come From?
- 80-10-10 piggyback loans – Lenders do not want you to make payments on the down payment portion of the loan. The one exception to this rule is. A piggyback 80-10-10 loan, where a borrower gets two loans. One for 80% of the purchase price and another for 10% of the purchase price, with a 10% down payment.
- 401k / Savings – Typically, borrowers save the money for the down payment in their savings account or 401k retirement account.
- Down Payment Gifts – Most types of home loans allow borrowers to be gifted the down payment from friends or family members. Accompanying the gifted down payment funds will be a letter stating that the money is a gift, no a loan, and is not required to be paid back.
Down Payment Requirements by Mortgage Type
Down Payment Requirement by Loan Type | |
Down Payment | |
3.5% with a 580 credit score (10% with 500-579 score) | |
No down payment | |
No down payment | |
Conventional Loan | |
HomeReady Loan | |
Home Possible Loan | |
203k FHA Rehab Loan | |
Low Down Payment Home Loans
- FHA loans – 3.5% down payment required with a 580+ credit score. 10% down with a 500 score.
- VA loans – 100% financing (No down payment) for veterans of the U.S. military.
- USDA loans – 100% financing (No down payment) for low-to-median income borrowers in rural areas of the country.
- Home Possible / HomeReady Loans – 3% down payment exclusively for low-income first-time homebuyers who meet the income limits.
- Conventional 97 loans – The conventional 97 loan program requires just a 3% down payment and is available to buyers with a credit score of 680+.
Upfront Costs Besides the Down Payment
- Closing costs – Closing costs are fees charged by mortgage lenders for processing and funding mortgage loans. On average, you can expect to pay between 2%-5% of the loan amount.
- Home Appraisal – The home appraisal is what lenders use to determine the market value of the property.
- Discount points – Discount points are pre-paid interest that will lower the interest rate you pay towards the loan.
