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Mortgage Basics

What Assets Can I Use for My Down Payment?

November 19, 2019

A down payment is the portion of your new home’s cost you pay upfront. Some mortgage loans require a certain percent down, and others require none at all. There are, of course, perks to providing a down payment, such as a lower mortgage amount (therefore a lower monthly payment) or avoiding private mortgage insurance. 

What Can I Use for my Down Payment? 

  • Funds from checking and/or savings account 
  • Gift funds 
  • Funds from 401(k) or IRA 
  • Down payment assistance 

What Can’t I Use for my Down Payment? 

  • Cash saved and stored in your home, safe, etc.
  • Cash earned from garage sales
  • Unsecured borrowed funds (such as payday loans, signatures loans, or an advance on a credit card) 

Down Payment Asset Breakdown

The most common source of down payment is using funds from your checking or savings accounts. This can be money you’ve saved up for years, or fairly recently, but your loan originator will need to see 2-3 months’ worth of bank statements to verify your financial activity. You could also pull from your 401(k) or IRA to fund your down payment, but we recommend chatting with your financial advisor before making any big financial moves like this. 

If someone plans to gift you money for your down payment, you must document the money before it’s given to you — your loan originator can give you a template. This is formally called a gift letter, and both you and the giver should write one expressing the purpose of the gift funds. 

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There are also plenty of down payment assistance programs available. Many are state specific and have income or purchase price limits, so find a loan professional in your area to determine what you’re eligible for. Oftentimes, you can use these funds for down payment and/or closing costs, so be sure to discuss your options with your loan originator! 

On the other hand, you can’t use straight up cash you have stored under your mattress. If you do have money saved this way, get it in the bank as soon as possible — it needs to be “seasoned,” or in your account for at least 60 days prior to use. Gift funds are an exception to this rule, which is why they need to be formally documented. 

You’re probably seeing a trend here — funds for a down payment can’t just come out of nowhere. If purchasing a new home is on your radar, it never hurts to start saving as early as possible. Worst case scenario is you end up with some extra money in the bank! If you have any questions about your specific situation, you can always contact a local mortgage expert in your area. One of our experts can walk you through the entire down payment process.