What Assets Can You Use Towards Your Down Payment?
Saving for a home is a big task. When rent, groceries, and other bills take up a lot of your budget, saving for a down payment can feel next to impossible. But your down payment doesn’t have to come from your savings alone.
Gift funds, down payment assistance, investments, and other approved assets can help you put together enough money to be used towards your down payment. The key is knowing which funds your loan allows, and the type of records you need to show.
In this blog, we are going to take a closer look at the potential assets worth bringing to the closing table to bring you closer to buying a home.
- What Can You Use for a Down Payment?
- What Does Your Down Payment Cover?
- Is a 20% Down Payment Necessary?
- What are the Pros and Cons of a 20% Down Payment?
- What Assets Can’t You Use Toward Your Down Payment?
- How Do You Document Your Down Payment Assets?
- Frequently Asked Questions (FAQ) About Down Payment Assets
What Can You Use for a Down Payment?
You don’t need to save your entire down payment amount from your paychecks. Depending on your mortgage program, you may be able to combine funds you already have with other eligible sources to put towards your down payment.
These are the most popular options you may be able to use addressed in Fannie Mae’s guidelines.
| Source of Funds | What to Know |
|---|---|
| Checking or savings accounts | Your lender must verify the funds and review deposits when required. |
| Gift funds | The money must be from a qualified donor, usually a relative, and a signed gift letter is required. |
| Down payment assistance | The assistance program and your mortgage must work together. |
| Employer assistance | The employer’s program and any repayment terms must be reviewed. |
| Trust funds | You must have immediate access to the funds. |
| Stocks, bonds, and mutual funds | Your lender must verify ownership and value. |
| Eligible retirement funds | Access, ownership, and account rules matter. |
| Home-sale proceeds | Your lender must document the proceeds available for your purchase. |
| Personal asset sales | The sale and your receipt of the money must be documented. |
| Cryptocurrency | The funds must meet conversion and verification rules. |
Your lender must verify the funds and review deposits when required.
The money must be from a qualified donor, usually a relative, and a signed gift letter is required.
The assistance program and your mortgage must work together.
The employer’s program and any repayment terms must be reviewed.
You must have immediate access to the funds.
Your lender must verify ownership and value.
Access, ownership, and account rules matter.
Your lender must document the proceeds available for your purchase.
The sale and your receipt of the money must be documented.
The funds must meet conversion and verification rules.
But remember, each source has its own rules that differ from one another. That is why it is essential that you communicate with your lender so that they can see whether these types of funds meet your loan requirements.
Check With Your Loan Officer First
Each type of asset has its own rules, and not every funding source is allowed under every mortgage program. Before moving money or planning your down payment, work with a loan officer to confirm which funds you can use.
If you need a loan officer, contact our team!
What Does Your Down Payment Cover?
A down payment covers part of your home’s purchase price paid upfront. It is a separate cost from your mortgage which covers the amount you borrow to pay for the rest of your home. It also gives you an ownership stake in your home from the start, allowing you to start building equity.
Your down payment is also separate from your closing costs, which are fees and expenses tied to completing your home purchase.
Budget Check
When planning your budget, make room for the down payment and closing costs to give you a clearer picture of how much money you’ll need at closing.
Is a 20% Down Payment Necessary?
Contrary to popular belief, a 20% down payment is not always required.
Depending on the loan type and your eligibility, minimum down payments may include:
- Conventional loans: As low as 3% through eligible programs.
- FHA loans: As low as 3.5% with a qualifying credit score of 580 or higher, or 10% with a score between 500 and 579. Lenders may have stricter requirements.
- VA loans: No down payment for eligible borrowers in many cases, though one may be required in certain situations.
- USDA loans: No down payment for qualifying borrowers purchasing a home in an eligible rural area, subject to income limits and other program requirements.
What are the Pros and Cons of a 20% Down Payment?
Saving for a 20% down payment can take longer and leave you with less cash for closing costs, moving expenses, repairs, or emergencies. A smaller down payment may help you buy sooner while keeping more savings available, but you may have a higher monthly payment and need mortgage insurance. The right choice depends on your budget, savings, and loan program.
Putting 20% down has benefits: it lowers the amount you need to borrow and, on a conventional loan, generally helps you avoid private mortgage insurance (PMI). This can reduce your monthly mortgage payment, and a larger down payment may also help you qualify for better loan terms.
What Assets Can’t You Use Toward Your Down Payment?
Before you count certain funds toward your homebuying budget, it helps to know which sources of money cannot be used towards your down payment.
- Credit cards: Money from your credit cards cannot be used for your down payment.
- Cash kept at home: Cash stored outside a bank account is generally not acceptable because its source can be difficult to verify.
- Seller, builder, or real estate agent credits: These credits may help cover eligible closing costs, but they cannot replace your required down payment. They follow different rules from an eligible gift of equity.
- Cryptocurrency that has not been converted yet: Cryptocurrency must first be exchanged into U.S. dollars, held at a U.S.- or state-regulated financial institution, and verified before closing. Your lender will need documentation of the conversion and transfer.
How Do You Document Your Down Payment Assets?
Knowing where your down payment will come from is a great start. Next, you’ll need to show your lender that the money is available and comes from an eligible source. Keeping clear records can help make this part of the homebuying process easier.
The documents you need will depend on your funding source and loan program, but common examples include:
- Bank statements
- Gift documentation
- Records from selling an asset
- Proof of large deposits
Before moving money between accounts, accepting a gift, or selling an asset, ask your loan officer what records to keep. Your exact checklist will depend on your loan program and lender, so getting guidance early can help you avoid missing paperwork later. Along with VA and USDA loans, these options also give today’s buyers more paths to achieving homeownership.
Frequently Asked Questions (FAQ) About Down Payment Assets
Not always. Eligible gifts, grants, and certain assistance programs may cover part or all the funds needed for some purchases. The answer depends on the mortgage and property type.
Yes, when your mortgage allows the gift. Fannie Mae permits eligible gift funds to cover all or part of a down payment, subject to its donor, documentation, and contribution rules.
It depends on the program. A qualifying grant has no expected repayment, while an assistance loan may require payments, delay repayment, or forgive debt over time under its terms.
An ordinary seller credit cannot pay your down payment under Fannie Mae’s rules. A properly documented gift of equity from an approved donor is a separate option with different requirements.
An eligible, documented earnest money deposit can be applied toward your down payment or closing costs. It is money you have already paid into the purchase, not an extra source to count twice.
Affording a down payment is one of the biggest worries buyers face today, but it’s not the only path to homeownership. Whether you qualify for a zero-down option loan or you need help exploring low down payment and assistance programs, you don’t have to figure it out alone.
Our loan officers at First Heritage Mortgage can walk you through your options and build a plan that fits your budget. Get started today!
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