Mortgage Down Payment Sources: 12 Ways to Fund Your Home Purchase

The down payment is often the biggest hurdle between you and homeownership. While the old myth says you need 20% down, the reality in 2026 is far more flexible — many loan programs accept 3% to 5% down, and some require zero down payment at all.

But even 3% on a $400,000 home is $12,000. Where does that money come from? This guide covers every legitimate down payment source that mortgage lenders accept.

1. Personal Savings

The most straightforward source — and the one lenders love most. Money sitting in your checking or savings account for at least 60 days is considered "seasoned" and requires minimal documentation.

How to Accelerate Your Savings

Automate transfers — set up recurring deposits to a dedicated "house fund" account
Use high-yield savings accounts — earn 4% to 5% APY while you save
Reduce expenses temporarily — even six months of aggressive saving can make a difference
Set a specific target — knowing you need exactly $15,000 is more motivating than "saving for a house"

Documentation Required

Last two to three months of bank statements showing the balance
All pages, even blank ones

2. Gift Funds from Family

Gift money from family members is one of the most common down payment sources, especially for first-time buyers. Every major loan program accepts gifts, but the rules vary:

Conventional Loans

Gifts accepted from family members (spouse, parent, sibling, grandparent, domestic partner)
If putting less than 20% down, some of your own funds may be required (varies by program)
With 20%+ down, 100% of the down payment can be a gift

FHA Loans

Gifts accepted from family, employers, labor unions, close friends (with documented relationship), charitable organizations, and government agencies
100% of the 3.5% down payment can be a gift

VA and USDA Loans

Gift rules are generous — both programs accept gifts from a wide range of donors

Required Documentation

Gift letter signed by the donor stating: the amount, the property address, the relationship to you, and that no repayment is expected
Donor's bank statement showing the withdrawal
Your bank statement showing the deposit
Transfer documentation linking the two

Critical rule: Gift funds cannot be loans in disguise. If a lender discovers you're expected to repay a "gift," your application will be denied.

3. [Down Payment Assistance Programs](/blog/first-time-homebuyer-grants-2026) (DPAs)

Thousands of DPA programs exist across the country, offered by state housing agencies, cities, counties, and nonprofits. These programs provide:

Grants — free money that never needs to be repaid
Forgivable loans — typically forgiven after you live in the home for 5 to 10 years
Deferred loans — no payments required until you sell, refinance, or move
Matched savings — some programs match your savings 2:1 or 3:1

Who Qualifies?

First-time homebuyers (most programs) — many define "first-time" as not owning a home in the past three years
Income limits vary by program and location — typically 80% to 120% of area median income
Some programs are available to repeat buyers, veterans, teachers, healthcare workers, or first responders

For a comprehensive look at available programs, see our down payment assistance programs guide.

4. Retirement Account Withdrawals

Your retirement savings can be tapped for a down payment, though the rules and consequences vary:

401(k) Loans

Borrow up to 50% of your vested balance (max $50,000)
You repay yourself with interest
No tax penalty since it's a loan, not a withdrawal
Risk: if you leave your job, the loan may become due immediately
Lenders count the 401(k) loan repayment in your DTI ratio

401(k) Hardship Withdrawals

Available for first-time home purchases at some employers
Subject to income tax plus a 10% early withdrawal penalty if under 59½
Reduces your retirement savings permanently

Traditional IRA

First-time homebuyers can withdraw up to $10,000 penalty-free (lifetime limit)
You still owe income tax on the withdrawal
"First-time" means you haven't owned a home in two years

Roth IRA

Contributions (not earnings) can be withdrawn anytime, tax-free and penalty-free
Up to $10,000 in earnings can be withdrawn penalty-free for a first home purchase if the account is at least five years old
This makes Roth IRAs one of the most flexible down payment sources

5. Sale of Assets

Selling investments, vehicles, or other assets is perfectly acceptable:

Stock or investment sales — provide brokerage statements showing the sale and transfer to your bank
Vehicle sales — bill of sale and deposit documentation
Cryptocurrency — convert to USD and deposit; provide exchange records and bank statements
Personal property — documented sales of valuable items (art, jewelry, collectibles)

The key is a paper trail. Every dollar of your down payment must be traceable.

6. Employer Assistance Programs

Some employers offer housing benefits as part of their compensation packages:

Direct down payment grants — common at large tech companies and hospitals
Forgivable loans — typically forgiven if you stay employed for a set period
Homebuyer education sponsorship — some programs pair education with financial assistance
Relocation packages — may include housing allowances

Ask your HR department about homebuyer assistance programs. Even if they don't have a formal program, some employers will provide an advance on salary or bonus.

7. Government and Nonprofit Grants

Beyond DPA programs, other grant sources include:

HUD programs — various federal initiatives for low- to moderate-income buyers
State housing finance agencies — every state has one, and most offer first-time buyer grants
Habitat for Humanity — not just builds; some chapters offer financial assistance
NACA (Neighborhood Assistance Corporation of America) — offers mortgages with no down payment, no closing costs, and below-market rates for qualifying borrowers
Community Development Financial Institutions (CDFIs) — local organizations focused on underserved communities

8. Home Equity (for Current Homeowners)

If you already own property:

Sell your current home and use the equity for your next purchase
[HELOC or [home equity loan](/blog/best-heloc-lenders-2026)](/blog/home-equity-loan-vs-heloc-2026) — borrow against current property to fund the down payment on a new one (lenders will factor this debt into your DTI)
[Bridge loan](/blog/bridge-loan-for-real-estate) — short-term financing that bridges the gap between buying a new home and selling your current one

9. Savings Bonds and CDs

Government savings bonds (Series EE and I bonds) and certificates of deposit are straightforward down payment sources:

Cash them out and deposit the funds into your checking account
Provide redemption documentation and bank statements
Interest earned is taxable — plan accordingly

10. Legal Settlements and Insurance Payouts

If you've received a settlement, inheritance, or insurance payout:

Personal injury settlements
Insurance claims
Inheritances — provide documentation of the estate distribution
Divorce settlements — provide the decree and transfer documentation
Lottery or contest winnings

All require documentation proving the source and amount.

11. Crowdfunding and Community Support

Modern options include:

HomeFundIt and similar platforms — dedicated homebuyer crowdfunding sites where friends and family can contribute to your down payment
Community lending circles — organized savings groups common in immigrant communities
Wedding registries for homes — some couples ask for home fund contributions instead of traditional gifts

Lenders treat crowdfunded money similarly to gifts — each contributor may need to provide a gift letter.

12. Zero-Down-Payment Loan Programs

Sometimes the best down payment strategy is not needing one:

VA loans — zero down for eligible veterans and service members
USDA loans — zero down for properties in eligible rural areas
Navy Federal Credit Union — offers 100% financing to members
Some state programs pair zero-down mortgages with income requirements

Sources Lenders Will NOT Accept

Be aware of unacceptable down payment sources:

Cash that can't be documented — mattress money with no paper trail
Borrowed funds disguised as gifts — this is fraud
Credit card cash advances — unsecured borrowed funds
Payday loans
Funds from illegal sources (obviously)
Money from the seller beyond allowed concessions

How to Document Your Down Payment

Regardless of the source, documentation is everything:

Start early — have funds in your account at least 60 days before applying
Keep a paper trail — every transfer, gift, sale, or withdrawal needs documentation
Avoid large cash deposits — any deposit that isn't a regular paycheck will be questioned
Don't move money around — shifting funds between accounts creates unnecessary complications
Label your savings account — some lenders appreciate seeing a dedicated "home purchase" account

For a complete overview of everything you'll need for your application, see our [[mortgage application checklist](/blog/mortgage-application-checklist-2026)](/blog/mortgage-application-checklist-2026).

Combining Multiple Sources

Most borrowers use a combination of sources. For example:

$8,000 from personal savings
$5,000 gift from parents
$3,000 from a DPA grant
$2,000 from cashing out savings bonds

This is perfectly acceptable as long as each source is properly documented.

Strategic Considerations

Down Payment vs. Reserves

Don't drain every dollar for the down payment. Most lenders want to see two to six months of mortgage payments in reserves after closing. A slightly smaller down payment with healthy reserves is often better than maxing out your down payment and having nothing left.

Down Payment vs. Closing Costs

Remember that closing costs (2% to 5% of the purchase price) are separate from your down payment. Budget for both, or negotiate [seller concessions](/blog/seller-concessions-guide) to cover closing costs. Our [[mortgage closing day](/blog/mortgage-closing-day-guide) guide](/blog/mortgage-closing-day-guide) details what those costs include.

PMI Considerations

If you put less than 20% down on a conventional loan, you'll pay [private mortgage insurance](/blog/mortgage-insurance-pmi-guide). Sometimes it's worth putting less down and investing the difference. Run the numbers for your specific situation.

Final Thoughts

The down payment barrier is real but not insurmountable. Between DPA programs, gift funds, retirement accounts, and low-down-payment loan programs, there are more paths to homeownership than most people realize.

Start by calculating exactly how much you need, then work through this list to identify which sources apply to your situation. Combine strategies where it makes sense, and always document everything meticulously.

Ready to take the next step? Get pre-approved to find out exactly how much down payment you'll need for your target home price.

Down Payment Assistance Programs

Mortgage Down Payment Sources

Key Takeaways