Physical Address

304 North Cardinal St.
Dorchester Center, MA 02124

Are There Loans for Down Payments?

Making a down payment on a home is often the biggest hurdle for prospective homebuyers. While down payments typically range from 3-20% of the purchase price, coming up with such a large amount of cash is difficult for many, especially first-time homebuyers.

If you don’t have enough saved for a sufficient down payment, is it possible to get a loan?

Yes, there are loans available for down payments. These include personal loans, 401(k) loans, piggyback loans, home equity loans or lines of credit, and gift funds or assistance programs. However, these options come with varying interest rates and repayment terms. Eligibility typically requires a good credit score, steady income and employment, low debt-to-income ratio, and a good credit history.

A mini model of the house

Let’s explore the ins and outs of financing a home down paymentand whether it’s the right option for you.

What Are the Typical Down Payment Amounts?

Traditionally, lenders have required a down payment of 20% of the home’s purchase price. However, in recent years, several options for reduced down payments have emerged:

  • Conventional loans now offer down payments as low as 3% for qualified buyers. 
  • FHA loans allow down payments as low as 3.5%. 
  • VA loans and USDA loans offer 0% down payment options for eligible borrowers.

While lower down payments are appealing, they often incur additional costs like mortgage insurance and higher interest rates. Carefully weigh the pros and cons when considering low or no down payment mortgages.

Can You Get a Loan for a Down Payment?

If your savings aren’t enough to cover the down payment you need, financing may help bridge the gap. It is possible to get a loan for a down payment on a home. This type of financing can help prospective homeowners who may not have enough savings to cover the required down payment. Down payment loans can be obtained from various sources including banks, credit unions, online lenders, and even retirement accounts or family and friends.

Typically, these loans allow you to borrow up to 80-90% of the total amount needed for the down payment. The interest rates and repayment terms vary greatly depending on the type of loan and your personal financial situation. For instance, personal loans usually offer repayment terms of 1-7 years with interest rates between 3-6%, while 401(k) loans might have slightly higher interest rates but also offer longer repayment periods.

There are several types of down payment loans available including personal loans, 401(k) loans, piggyback loans (a combination of first and second mortgage), home equity loans or lines of credit, and gift funds or assistance programs. Each has its own pros and cons that should be carefully considered before making a decision.

To qualify for a down payment loan, lenders typically require a credit score of at least 620-640+, steady income and employment history, low debt-to-income ratio, and good credit history with on-time payments.

How Much Can I Borrow for a Down Payment Loan?

Down payment loans allow you to borrow a portion of your required down payment, typically up to 80-90% of the total amount needed.

What Are the Interest Rates on Down Payment Loans?

Interest rates vary greatly depending on the loan type, your finances and credit score. Generally, expect rates of 7-36% for personal loans and up to 8% for 401(k) loans.

What Are the Repayment Terms for Down Payment Loans?

Repayment terms also vary by loan type, but are often 1-7 years for personal loans and 401(k) loans and 10-30 years for home equity loans.

How Do I Apply for a Down Payment Loan?

Down payment loans can be obtained from banks, credit unions, online lenders, retirement accounts, and even from friends and family. Shop around to find the best rates and terms. The process of applying for a down payment loan is relatively straightforward. Here are the key steps to take:

First, research the different down payment loan options available and select the type of loan that best fits your needs and budget, such as a personal loan, 401(k) loan, or home equity loan. Compare interest rates and repayment terms from multiple lenders.

Next, gather all of the required documents needed to complete the down payment loan application. This usually includes personal information like your social security number, driver’s license, tax returns, and pay stubs to verify your income and employment. Lenders will also want information on your assets, outstanding debts, and credit history.

When applying, make sure to calculate the exact down payment amount you need and the loan amount you are requesting to cover a portion of that down payment. Provide details on the home you plan to purchase, your preapproval letter, and estimated closing costs.

Many lenders now offer the ability to complete the down payment loan application online. Make sure all information submitted is accurate and complete. Respond promptly to any additional requests from the lender.

If approved, you will receive a down payment loan offer that specifies the loan amount, interest rate, fees, and repayment terms. Thoroughly review all terms before signing the loan agreement. You’ll need to accept and sign the loan documentation prior to receiving the funds.

The down payment loan funds will then be sent directly to the title company or attorney handling your home closing. After closing, you will begin making the agreed-upon monthly payments on the down payment loan based on the repayment schedule.

With some diligent research, preparation, and comparison shopping, securing financing for your home down payment is completely doable. The loan proceeds can help cover the large lump sum payment needed to reach your dream of homebuying.

What Are the Different Types of Down Payment Loans?

There are several options for financing a home down payment, each with their own pros and cons:

1. Personal Loans

A personal loan is an unsecured loan that can be used for a variety of purposes, including covering a portion of your mortgage down payment. With a personal loan, you borrow a fixed amount of money and repay it over a set repayment term with a fixed interest rate.

To use a personal loan for a home down payment, you would apply to borrow a specific amount – typically between $1,000 to $50,000 – to put toward your required down payment. The loan proceeds get deposited into your bank account and you can then use those funds as part of your down payment at closing.

Personal loans offer more flexibility than a 401(k) or home equity loan since the money can be used for any purpose. Interest rates are based on your income, credit score, and credit history but generally range from around 5% to 36%.

One downside of personal loans for a down payment is they typically have shorter repayment terms of 1-7 years. This results in higher monthly payments than longer-term options. However, the fixed rates and terms help you easily budget the set monthly payment.

To qualify for a personal loan, lenders look at your income, existing debts, credit score and credit history. Having a credit score above at least 660 will likely get you better rates. Debt-to-income ratio also matters since lenders want to see you can manage the new monthly payment.

Personal loans are relatively easy to apply for through banks, credit unions, and online lenders. You’ll complete an application, submit documents to verify income and identity, then receive loan decision usually within 1-2 weeks.

While not the cheapest financing option, a personal loan allows you flexibility in using the funds for your mortgage down payment while repaying at a fixed rate over a shorter timeframe. For first-time homebuyers with sufficient income, it can be a viable way to cover the large lump sum down payment amount.

2. 401(K) Loans

A 401(k) loan allows you to borrow against your existing 401(k) retirement savings account to help fund your mortgage down payment. This allows you access to funds without tax penalties while repaying yourself with interest.

With a 401(k) loan, you can typically borrow up to 50% of your vested 401(k) balance or $50,000, whichever is less. The caveat is that you have to repay the loan back into your account within 1-5 years through automatic payroll deductions.

If your employer offers a 401(k) plan, you would apply through the plan administrator to take out a general purpose loan. You don’t have to disclose how you plan to use the funds. The 401(k) loan proceeds would then get sent to you in a check or direct deposit.

You can use those funds to cover a portion of your required home down payment at your real estate closing. This allows you to leverage your existing retirement savings to purchase a home now rather than waiting to accumulate a full down payment.

The main benefit of a 401(k) loan is you pay the interest back to yourself instead of to a lender. A drawback is if you leave your job, the loan may become due immediately. Another risk is missing payments reduces your retirement savings.

To qualify, you generally need at least $10,000 in your 401(k) account. Your employer determines eligibility requirements and often charges a loan origination fee. Interest rates are low, typically around 4-6% depending on market rates.

For first-time homebuyers with a sufficiently funded 401(k), using a portion as a short-term loan for your down payment can help you achieve your dream of homeownership sooner. Just be sure to budget for the repayment and have job stability.

3. Piggyback Loans

A piggyback loan refers to pairing a first mortgage with a simultaneous second mortgage to cover the down payment on the primary purchase loan. This allows buyers to avoid paying private mortgage insurance (PMI) while still financing 100% or more of the home’s value.

With a piggyback loan, the first mortgage would cover 80% of the purchase price, for example, with the piggyback second mortgage providing the remaining 20% down payment plus closing costs. This effectively finances the entire transaction with debt.

To use a piggyback loan for your mortgage down payment, you would apply and qualify for two mortgages at the same time. The first mortgage would have a lower principal and the second is essentially a home equity loan or line of credit for the down payment.

Because the second loan doesn’t require PMI, the interest rate is usually 0.25-0.5% higher than the first mortgage rate. The second loan may also have a shorter 5-10 year term compared to a 15 or 30 year first mortgage.

A piggyback loan allows you to buy a home with little or nothing down while still avoiding the cost of PMI, which averages 0.5-1% of the loan amount annually. This saves money compared to a single larger mortgage with PMI.

Lenders typically require excellent credit – 720+ scores – and stable income to qualify. Debt-to-income ratios max around 45%. Piggyback loans work best for buyers with great credit who have equity from another property.

For first-time homebuyers, piggyback loans present more risk due to higher total debt obligations. But for repeat buyers or those with ample savings, they can be an effective way to structure mortgage financing.

4. Home Equity Loans or Lines of Credit

Current homeowners can use home equity they’ve built up as an option to help finance their next mortgage down payment. This is done through a home equity loan or home equity line of credit (HELOC).

A home equity loan allows you to borrow against the equity – the current market value minus any mortgage debt – in your existing home. The lump sum proceeds can be used to cover all or part of your required down payment on a new home purchase.

Similarly, a HELOC provides revolving access to your home equity up to a set limit. You can draw as needed to obtain funds for your down payment, closing costs, or other purposes. HELOCs often have variable interest rates tied to market indexes.

Home equity loans and HELOCs use your home as collateral via a second lien. This gives access to lower interest rates – often prime plus 0% to 2% – and higher borrowing limits based on your equity amount.

To qualify, you’ll need sufficient equity, typically at least 15-20% of the home’s current value. You also need good credit – 640+ scores – and the ability to manage another monthly payment in addition to your existing mortgage.

A home equity loan or HELOC lets homeowners leverage the equity they’ve built up to help finance larger down payments on another home. While closing costs apply, interest rates are lower than alternatives like personal loans or credit cards. For repeat buyers with equity, it can be a cost-effective option.

5. Gift Funds or Assistance Programs

For first-time homebuyers or those without significant savings, receiving gift funds or grants for your mortgage down payment offers financing help without the need to repay a loan.

Gift funds typically come from relatives – often parents, grandparents or siblings – who want to help a family member purchase their first home. The relative would provide a lump sum gift, via check or wire transfer, that the buyer can use at closing for their down payment and closing costs.

Down payment assistance (DPA) programs provide grants, forgivable loans or shared equity financing to qualifying buyers, requiring no monthly payments or repayment. DPA programs are offered by non-profits, housing finance agencies, and some state and local governments.

Eligibility for DPA grants depends on factors like income limits, home location, first-time buyer status, military service, disability status or occupation. Grant amounts range from 2-5% of the purchase price.

To receive gift funds or grants, documentation must show the money is coming from an eligible third-party without need for repayment. Lenders verify this through signed gift letters or award letters from the providing organization.

Gift funds and down payment assistance allow buyers to cover their down payment without increasing monthly debts. This helps ease affordability concerns. Before considering loans, buyers should always check eligibility for these programs. They provide critical help to those dreaming of homeownership but lacking down payment funds.

What Are the Requirements for Getting a Down Payment Loan?

To qualify for a down payment loan, requirements typically include:

  • A credit score of at least 620-640+ 
  • Steady income and employment 
  • Low debt-to-income ratio
  • Good credit history with on-time payments

Meeting these requirements results in better chances of approval and lower interest rates.

Pros and Cons of Getting a Loan for a Down Payment

Down payment loans offer several benefits:


  • Allow you to buy sooner than saving up 
  • Keep more cash on hand after closing
  • Potentially lower mortgage rates by avoiding MI with 20% down


  • Additional monthly payment to repay the loan
  • Interest charges increase total costs
  • Potential early withdrawal penalties on 401(k) loans

Carefully weigh the tradeoffs to decide if it’s the right option for you. 

How to Qualify for a Loan for a Down Payment?

To improve your chances of getting approved, you’ll want:

  • A credit score of 720+ 
  • Low debt balances
  • Significant retirement account balances if using a 401(k) loan
  • At least 3-6 months of living expenses in savings

Meeting these criteria shows lenders you can manage the repayment responsibility.

What Are the Risks of Taking Out a Loan for a Down Payment?

While loans can help make a purchase possible, the risks include:

  • Difficulty repaying if income decreases
  • Paying more interest charges over time
  • Depleting retirement savings if borrowing from a 401(k)
  • Potential for mortgage default if overall monthly payments are too high

Carefully consider these risks before moving forward with a down paymentloan.

What Are Some Alternatives to Down Payment Loans?

While financing can help cover your required down payment, incurring additional debts also increases risks should your income decrease. For buyers wanting to avoid loans, here are some potential alternatives:

Saving Up Over Time

Building up your down payment through diligent savings is always an option. While it requires patience and discipline, you avoid interest costs and achieve the 20% down payment needed to waive PMI with pride. Time your home search to align with reaching your savings target.

Government Programs

State, local, and federal programs like FHA, VA, and USDA loans offer low or no down payment options with reduced PMI for eligible borrowers. Income and regional restrictions apply but can provide significant help, especially for lower income or rural buyers.

Seller Financing

Some sellers may agree to finance a portion of the purchase price to help buyers who fall slightly short on their down payment amount. This effectively functions as a second mortgage with the seller where buyers slowly repay the seller over several years.


Online crowdfunding platforms allow buyers to request small dollar donations from a large number of individuals in their social networks and broader communities. While not likely to raise a full down payment, every bit helps.

Shared Equity Financing

State and local housing agencies sometimes provide shared equity loans, where they finance part of the down payment and share in a portion of the home’s future equity and appreciation. The exact terms vary but it’s an alternative to fund down payments and avoid PMI.

While the simplicity of financing is appealing, for qualified buyers, grants, low down payment programs, creative seller arrangements, community support, or disciplined saving may help achieve homeownership without increasing monthly debts.


While down payment loans allow buyers to purchase sooner, they also incur interest charges and monthly repayment obligations. Thoroughly evaluate your finances and alternatives like assistance programs before moving forward. With proper planning, you can make your homebuying dream a reality.

Frequently Asked Questions(FAQ)

Can you take out a loan for a down payment?

Yes, it is possible to take out a loan for a down payment. This type of loan is typically referred to as a mortgage bridge loan, and it is offered by many lenders. The loan can be used to cover the difference between the down payment and the amount of money you have available to put towards the purchase of a home.

How not to pay a down payment?

One way to avoid making a down payment on a home purchase is to take advantage of a government-backed loan program, such as an FHA loan. These loans require as little as 3.5% of the purchase price as a down payment. Another option is to use a lender offering a zero-down mortgage, such as Rocket Mortgage, which allows qualified borrowers to finance 100% of the home purchase. Finally, some sellers are willing to finance the entire purchase without requiring a down payment.

What is a down payment loan?

A down payment loan is a type of loan that requires a borrower to make an upfront payment before they can receive the loan. This payment is typically a percentage of the total loan amount and is usually used to cover the cost of the loan. Down payment loans are typically used to purchase large items such as houses or cars, and can help reduce the amount of interest paid over the life of the loan.

What is Biden’s $25,000 first time home buyer?

Biden’s $25,000 first time home buyer program is a housing initiative proposed by President Joe Biden during his 2020 presidential campaign. The program would provide first-time home buyers with a $25,000 grant to be used as a down payment on a home. This grant would be available to buyers who meet certain income eligibility requirements and is intended to help make homeownership more accessible for those who may not have the funds to make a large down payment.