Borrowing Money for a Down Payment

Mortgage lenders don’t typically want down payment funds to be borrowed funds. In fact, lenders usually only allow borrowed funds as a down payment if they are secured by an asset. The types of loans that are normally secured by an asset include a home equity line of credit, a stock portfolio, or a car loan but only if you hold the title to that car. Keep in mind that mortgage lenders will factor in borrowed down payment funds when calculating the debt-to income ratio.

Home buyers that already own homes often apply for a home equity line of credit before beginning their search for a new home. This makes sense since home equity lines are relatively easy to obtain and generally don’t cost a lot. Accessing funds from a home equity line makes sense in many situations such as when a homeowner plans to rent the current home, when a homeowner needs money for a down payment on a new home, and when there’s uncertainty in the housing market. As an added benefit, having access to down payment funds makes a buyer a more viable candidate when sellers are reviewing non-contingent offers made on their homes.

Loans that are not secured by an asset and generally not considered a viable source of a down payment include:

• A cash advance made using a credit card
• A credit union signature loan
• A loan made by family or friends

Only loans secured by something that you own like a house, or a car, an investment or retirement fund or some other asset will be considered.