Where Your Down Payment May Come From

October 28, 2023

Where can your down payment come from? Believe it or not, regulations dictate the appropriate source of funds for an FHA loan down payment, and you’ll want to know the rules as early as possible to avoid delays or complications with your loan transaction.

What are the acceptable sources of funds for your down payment? They include cash saved at home, cashed-in investments, and gifts from friends or family. But there are other sources, too. We cover several of them below.

The information here is not exhaustive, and there may be other sources for your down payment you haven’t considered yet. The key is to ensure they are acceptable to the FHA loan program and the lender.

Investments as Acceptable Sources of Down Payment Funds for an FHA Mortgage

You can use investments of many kinds as sources of your down payment. That includes stocks, bonds, selling investments or real estate proceeds, and more.

What you cannot do with your down payment? Try to trade the investment for the downpayment value directly. You can’t offer bonds to the lender to get credit for the down payment, and you can’t make a downpayment on an FHA mortgage with cryptocurrency.

Cashing in some investments may result in a tax penalty. Before you take steps to liquidate a holding, speak to a tax professional.

Equity as a Down Payment

Your seller may be willing to give you a gift of equity, a percentage of the seller’s equity in the home transferred to the borrower for use as a down payment or for closing costs.
 
Some may find they are restricted in receiving such a gift, which should come from a family member, domestic partner, fiancee, or other close relationship. Ask your loan officer in advance about this option before deciding on it.

Down Payments Sourced From Inheritances

FHA loan rules permit the use of inherited funds as a down payment, but the inheritance must be received before the closing date. State law and lender standards may apply in this area. Be sure to ask what’s permitted. Be aware of any state or federal tax implications when using inherited funds. You may need to ask a financial advisor or tax professional.

Down Payment Grant Programs

A state or local agency may offer you down payment assistance, closing cost assistance, or both. Typically, these programs are need-based in many locations.

You may find income caps, or sale price restrictions apply to some down payment assistance programs, but not all are need-based. You’ll need to work with a lender to determine whether you meet the criteria for this assistance and the conditions for accepting it.

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