Loans
Updated on February 20, 2024
Written by
Frank Gogol
Written by
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See all posts Frank Gogol
Reviewed by
Rohit Mittal
Reviewed by
Rohit Mittal
Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.
See all posts Rohit Mittal
At a Glance
- Personal
loans , 401(k)loans , and IRA withdrawals offer varied borrowing options. - Alternatives include gifts from family or friends, home equity
loans , seller financing, down payment programs, pledged assets, P2P lending, cash-out refinancing, and credit card advances. - Each option suits different individual circ*mstances; careful consideration is crucial.
You want to take a mortgage, but as you’re about to do so, you notice that you don’t have the necessary amount of cash to make a down payment. What do you do, then? Can you borrow money for a down payment?
Usually, about 43.2% of the people in the U.S. make a 20% down payment. If you want to be one of these people, but your financial situation is quite tricky, then you can borrow the money for the down payment.
Dive in with us as we unwrap eleven enticing options tailored for a multitude of circ*mstances, ensuring you’re well-equipped for that all-important leap to homeownership.
11 Ways to Get a Down Payment for a Home
When it comes to borrowing money for a down payment on a home, there’s no shortage of options. Below, we’ll discuss the eleven best options, with something for just about every set of circ*mstances.
Personal Loans
Personal
401(k) Loan
A 401(k) loan involves borrowing from your retirement savings. Instead of borrowing from a bank or other lender, you borrow from your own retirement account. You repay the loan over time with interest, which goes back into the 401(k).
Borrowing from IRA
Individual Retirement Accounts (IRAs) might allow for withdrawals for specific purposes, like buying a first home. While regular withdrawals might face penalties, special provisions can offer exceptions for home purchases.
Gift from Family or Friends
Sometimes family or friends might be willing to provide a gift to help with a down payment. This isn’t a loan, so there’s no expectation of repayment, but lenders may require documentation to ensure it’s a gift and not a hidden loan.
READ MORE: Borrowing from Loved Ones: 11 Essential Steps for a Smooth Loan Process
Home Equity Line of Credit (HELOC) or Home Equity Loan
If you already own a home with equity, you might qualify for a HELOC or a home equity loan. These options let homeowners borrow against the value of their home.
Seller Financing
In some cases, the seller of a property might offer to finance the purchase directly. This could mean they provide a loan to cover the whole purchase or just the down payment, often with terms negotiated between buyer and seller.
Down Payment Assistance Programs
Various programs, often sponsored by governments or non-profits, are designed to help first-time buyers or low-income individuals purchase homes. These programs can provide
Pledged Assets
Some lenders may allow borrowers to pledge financial assets (like stocks or bonds) as collateral instead of cash for a down payment. The assets remain in the borrower’s name, but the lender can claim them if the borrower defaults.
READ MORE: Should You Pay Off Student Loans or Buy a House?
Peer-to-Peer (P2P) Lending Platforms
P2P platforms connect individual borrowers with individual lenders, bypassing traditional banks. Borrowers can apply for specific loan amounts and outline their purpose, while individual investors can choose to fund these
Cash-Out Refinance
Homeowners can refinance their existing mortgages to take out additional cash beyond what they owe. This option involves resetting your mortgage, potentially at a new rate and term, and receiving the difference between the old and new loan in cash.
Credit Card Advances
A credit card advance is when you use your credit card to withdraw cash, similar to using a debit card at an ATM. This option typically comes with high interest rates and fees, making it a costly way to access funds.
It’s important to keep in mind that everyone’s circ*mstances are different and some options above will work better or worse depending on those circ*mstances. Still, with some many options, there’s almost surely a best option for everyone.
Pros and Cons of Down Payment Borrowing Options
As we mentioned above, different options will be better suited, or not, for different circ*mstances. Below, we’ve created a table of the many options and their pros and cons, so you can compare the options to better see which is the best fit for your situation.
| Option | Pros | Cons |
| Personal | Flexibility in usage; might be easier to qualify for. | Higher interest rates; increases debt-to-income ratio. |
| 401(k) Loan | Borrowing from yourself; interest goes back into account. | Reduced retirement fund earnings; potential tax implications. |
| Borrowing from IRA | Possible $10,000 penalty-free for first-time homebuyers. | Reduces retirement savings; potential tax implications. |
| Gift from Family or Friends | No need to repay (if genuine gift). | Potential interpersonal conflicts; gift letter might be needed. |
| HELOC or Home Equity Loan | Lower interest rates; interest may be tax-deductible. | Puts existing home at risk; increases overall debt. |
| Seller Financing | More flexible than traditional bank financing. | Not all sellers offer this; potentially less favorable terms. |
| Down Payment Assistance Programs | Favorable terms for first-time buyers; some grants don’t require repayment. | Qualification criteria; potential residency requirements. |
| Pledged Assets | Keeps assets invested while serving as collateral. | Risk of losing assets if loan defaults. |
| P2P Lending Platforms | Online, competitive rates based on credit. | Relies on credit scores; might have higher fees. |
| Cash-Out Refinance | Uses equity from one property for another. | Increases original property’s loan balance; potential higher rates. |
| Credit Card Advances | Immediate access to cash. | Very high interest rates; potential for accumulating debt. |
How Much Should You Borrow for a Down Payment?
The amount of the down payment you should make on a house depends on several factors, including your financial situation, goals, and the type of mortgage you’re obtaining. Here are some general guidelines to consider:
Conventional Mortgages
Conventional mortgages typically require a down payment of at least 3% to 20% of the home’s purchase price. The specific percentage depends on your creditworthiness, the lender’s requirements, and the loan program. A larger down payment can lead to more favorable loan terms and lower monthly payments.
FHA Loans
The Federal Housing Administration (FHA) offers
VA Loans
If you’re a qualified veteran or active-duty service member, you may be eligible for a VA loan, which typically requires no down payment. VA
USDA Loans
The U.S. Department of Agriculture (USDA) offers
Jumbo Loans
If you’re purchasing a high-priced home, you may need to make a larger down payment to qualify for a jumbo loan. The down payment requirement for jumbo
Factors to Consider When Determining Your Down Payment
Though the guidance above is generally considered to be best practices, not all borrowers have the same circ*mstances. Below, you’ll find some considerations you should keep in mind when deciding how much of a down payment to make on your new home.
- Your Financial Situation: Consider your current savings, income, and overall financial stability. Make sure you have enough funds for a down payment without depleting your emergency savings or neglecting other financial goals.
- Monthly Budget: Evaluate how the down payment amount affects your monthly budget. A larger down payment reduces the loan amount and can lead to lower monthly mortgage payments, which may be more manageable.
- Loan Terms: Review the terms and interest rates associated with different down payment amounts. A larger down payment can result in a lower interest rate and potentially save you money over the life of the loan.
- Risk Tolerance: Consider your comfort level with risk. A larger down payment can provide more equity in your home upfront, which may offer protection in case of a housing market downturn.
- Long-Term Goals: Think about your long-term financial goals and how homeownership fits into your overall financial plan. Consider how the down payment impacts your ability to achieve these goals.
In the end, the right down payment amount for you will depend on your unique circ*mstances and priorities. It’s essential to strike a balance between making a down payment that is financially manageable and provides favorable loan terms. It’s also wise to consult with a mortgage professional or financial advisor to help you make an informed decision based on your specific situation.
Best Lenders for Down Payment Personal Loans
Should you decide to go the personal loan route to help with your down payment, the next step will be to find the right lender. There are hundreds of lenders you could work with and it’s critical that you find the best one for your circ*mstances. It’s a lot of work, so we collected some top picks for you to consider:
- AmOne (Best for Okay and Good Credit)
- Spotlight
Loans (Best for Bad Credit) - Spring
Loans (Best for Bad Credit) - First Premier Lending (Best for Bad Credit and No Credit)
- Upgrade (Best for Good Credit)
- BestEgg (Best for Okay Credit)
AmOne (Best for Okay and Good Credit)
Navigating the world of home-buying? AmOne might be your guiding star. They act as a bridge between borrowers and a comprehensive list of lenders, ensuring you find a personal loan solution tailored to boost your home down payment fund. Their platform simplifies the hunt for the right fit, helping you inch closer to your dream home.
Check rate on website
on website
AmOne Personal Loan
4.5
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
600
Fixed APR
3.99%-35.99%
Variable APR
N/A
Overview
- Minimum credit score: 600.
- Fixed APR: 3.99%-35.99%.
- Loan amounts: $1,000 to $50,000.
- Repayment: 1 to 7 years.
Qualifications
- Must be at least 18 years old.
- Must be a U.S. citizen or permanent resident.
- While there’s no specific income requirement, a consistent source of income is essential for the applicant.
Pros
- Suitable for individuals with lower credit scores.
- No cost for the matching service.
- Attractive loan rates.
Cons
- Acts as an intermediary, not a direct lender.
- Risk of multiple contacts from prospective lenders.
- Lack of clarity on lender details.
Spotlight Loans (Best for Bad Credit)
Spotlight
on website
Spotlight Loans
4.8
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
None
Fixed APR
6.63% and up
Variable APR
N/A
Overview
- Minimum credit score: n/a
- Variable APR: 4.99% and up
- Loan amounts: $100 – $5,000
- Repayment: Depends on choice of lender
Qualifications
- Be 18 years of age or older
- Have a checking or savings account
- Have regular income
- Have a fair credit rating
Pros
- Spotlight Loans is willing to work with individuals who have less-than-perfect credit, making it a viable option for those who may struggle to secure loans from traditional lenders.
- Spotlight Loans offers same-day approval and funding, which is beneficial for those in urgent need of funds. This makes it a good option for emergency financial situations.
- Unlike traditional payday loans, Spotlight Loans provides the option to repay the loan over a period of months, offering more flexibility in repayment planning.
Cons
- One of the most significant drawbacks of taking a personal loan with Spotlight Loans is the potentially high interest rates. With APRs that can be much higher than traditional personal loan lenders, this can lead to substantial interest payments over time.
- Spotlight Loans offers loan amounts that are relatively low, which may not be sufficient for all borrowers’ needs.
- Spotlight Loans services are not available in all states, so it’s important to check if you reside in an eligible location before applying.
Spring Loans (Best for Bad Credit)
Springing into homeownership can be easier with Spring
Check rate on website
on website
Spring Loans Personal Loan
4.2
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
None
Fixed APR
27.00%
Variable APR
N/A
Overview
- Minimum credit score: None.
- Fixed APR: 27.00%
- Loan amounts: $3,000.
- Repayment: 48 months.
Qualifications
- Demonstrate a recurrent income.
- Minimum age prerequisite: 18 years.
- Validate U.S. citizenship status with an SSN.
- Provide a legitimate U.S. driver’s license or a state identity card.
- Establish a functional bank account for incoming deposits.
- Adhere to any specific demands by the loan provider.
Pros
- Open to applicants with any credit background.
- Four-year loan period aids in structured financial management.
- The $3,000 offer addresses several short-term financial challenges.
- Wide-reaching eligibility criteria invite a broad spectrum of applicants.
- The focus on dependable income over job title benefits varied income sources.
Cons
- The set 27% APR is higher than many alternatives.
- Restriction to a $3,000 loan might not cover all financial outlays.
- Possessing specific IDs is mandatory, sidelining some applicants.
- A prerequisite for an ongoing bank account may limit certain users.
First Premier Lending (Best for Bad Credit and No Credit)
When it comes to fortifying your home down payment, First Premier Lending stands out with their commitment to customization. By understanding each borrower’s unique home-buying journey, they provide loan options that are both flexible and relevant, ensuring you have the financial backing you need to make a robust down payment.
Check rate on website
on website
First Premier Lending Personal Loan
4.2
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
None
Fixed APR
27.00%
Variable APR
N/A
Overview
- Minimum credit score: None.
- Fixed APR: 27.00%.
- Loan amounts: $3,000.
- Repayment: 48 months.
Qualifications
- Maintain a consistent source of income.
- Must be at least 18 years of age.
- Possess valid U.S. citizenship and a legitimate social security number.
- Hold a current U.S. driver’s license or state-issued ID.
- Keep an active bank account for direct deposit.
- Satisfy any lender-specific criteria, such as credit rating, borrowing history, or place of residence.
Pros
- No minimum credit score requirement allows accessibility for those with varied credit histories.
- 48-month term provides clarity and allows for long-term financial planning.
- Specific loan amount of $3,000 can meet many short-term financial needs.
- Broad set of qualifications make the loan accessible to a wide range of people.
- Emphasis on consistent income, not necessarily employment type, allows flexibility for borrowers.
Cons
- A fixed APR of 27% is relatively high.
- Loan amount is capped at $3,000, which might not cater to larger financial requirements.
- Requirement of a U.S. driver’s license or state-issued ID could exclude some individuals.
- Mandatory active bank account could be limiting for those who are unbanked.
Upgrade (Best for Good Credit)
Dreaming of a new home? Upgrade your chances with a personal loan from Upgrade. Recognized for their seamless loan application and approval process, they provide potential homeowners a financial boost, ensuring that dream home isn’t just a mirage but a tangible reality within reach.
Check rate on website
on website
Upgrade Personal Loan
5.0
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
560
Fixed APR
8.49% - 35.99%
Variable APR
N/A
Overview
- Minimum credit score: 560
- Fixed APR: 8.49% – 35.99%
- Loan amounts: $1,000 to $50,000
- Repayment: 3 to 5 years (7 years on some larger loans)
Qualifications
- Possess an active bank account.
- Able to provide a legitimate email address.
- Minimum age requirement: 18 years (19 for Alabama residents).
- Credit score of 600 or higher.
- Annual income of $25,000 or more.
Pros
- Willing to accommodate borrowers with a credit score as low as 560.
- Offers flexibility with a range of loan amounts from $1,000 to $50,000. This can be suitable for both small and large financial needs.
- Provides options for repayment, allowing borrowers to choose a timeline that best suits their financial situation.
- Once approved, borrowers can access funds in just one day, which is useful for urgent financial needs.
Cons
- Origination fees can go as high as 9.99%, which might add a significant cost to the loan.
- Apart from the origination fee, there are fees for late payments and failed payments, which can add up if one is not careful.
- While there is an option to extend repayment for larger loans up to 7 years, it’s not standard for all loan amounts.
BestEgg (Best for Okay Credit)
Cracking the code to homeownership might just be easier with BestEgg. Known for their quick application process and competitive rates, they offer personal
on website
BestEgg Personal Loan
4.5
Stilt’s lender ratings reflect the findings and opinions of our editorial staff. Our scoring methodologies consider a wide array of factors and data points for every lender, offering, and financial solution.
Min. credit score
600
Fixed APR
8.99-35.99%
Variable APR
N/A
Overview
- Minimum credit score: 600.
- Fixed APR: 8.99-35.99%.
- Loan amounts: $2,000-$50,000.
- Repayment: 3 to 5 years.
Qualifications
- Targets borrowers with good to excellent credit; fair credit may qualify.
- Minimum credit score of 600.
- At least two years of credit history.
- Minimum annual income: $3,500 from various sources like employment, alimony, and more.
- Debt-to-income ratio: 40%, or 65% when including a mortgage.
- Must be a U.S. citizen.
Pros
- Soft credit check available for pre-qualification.
- Offers a diverse spectrum of loan amounts.
- Provides options for secured loans.
- Direct payments can be made to creditors for debt consolidation.
- Late fees are not charged.
Cons
- Charges an origination fee.
- Doesn’t offer rate discounts.
- Initial payment date isn’t customizable.
- Lacks a dedicated mobile app for loan management.
Read More
- Guide to Getting Second Personal Loans
- Principal Vs. Interest: What’s the Difference?
- What is Conditional Loan Approval?
- What is a Credit Reference?
- Everything You Should Know About Loan Pre-Approval Without Hard Inquiry
Final Thoughts
And there you have it – a comprehensive guide to sourcing that pivotal down payment, teeming with possibilities. Whether you’re a seasoned homebuyer or a fresh-faced newbie, understanding these options is paramount. Remember, every homebuyer’s journey is unique; finding the perfect route for your down payment requires introspection and informed decision-making. But with the right approach, those keys to your dream home are just around the corner. Happy house hunting!
Borrowing Money for a Down Payment FAQ
Below, you will find some commonly asked questions about borrowing money for a down payment and their respective answers.
Is it a good idea to borrow money for a down payment on a home?
While borrowing money can help you achieve homeownership sooner, it’s essential to consider the added debt you’ll take on. If the borrowed funds increase your monthly expenses significantly, it might strain your finances. Always assess your ability to manage the additional debt and ensure you’re comfortable with the terms and costs associated with the borrowed money.
Can I use a personal loan for a down payment?
Yes, you can use a personal loan for a down payment. However, lenders may view this as additional debt, potentially affecting your loan approval or the terms of your mortgage. It’s crucial to weigh the benefits against potential higher interest rates and the impact on your debt-to-income ratio.
What are the implications of borrowing from my 401(k) or IRA for a down payment?
Borrowing from your 401(k) or IRA can provide the funds you need, but there are consequences. For a 401(k) loan, you’ll pay interest back into your account, but you might miss out on potential market gains. If you don’t repay the loan, it’s considered a distribution and can be subject to taxes and penalties. With an IRA, you might qualify for a penalty-free withdrawal for a first-time home purchase, but you’d be depleting your retirement savings.
How do down payment assistance programs work?
Down payment assistance programs are typically sponsored by governments or non-profit organizations to help first-time or low-income buyers. These programs can offer low-interest
Are there any risks associated with seller financing for a down payment?
Seller financing, where the seller offers a loan directly to the buyer, can be more flexible than traditional bank financing. However, not all sellers provide this option, and those who do might impose less favorable terms. There’s also the risk of the seller not having clear title to the property or facing foreclosure, which could complicate the transaction. It’s advisable to work with a real estate attorney when considering seller financing.
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See author's posts
