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Your savings account is pretty bare right now. But you plan on buying a house in the near future. How can you possibly raise the money for a down payment?
For many, it’s not an issue. Popular loan types like the VA home loan require zero down payment. So do loans offered by the United States Department of Agriculture, known as USDA home loans.
Yet there are a group of home buyers who opt for an FHA or conventional loan. Their minimum down payments start at 3% for conventional loans and 3.5% for FHA loans.
Tim Erickson is a mortgage loan originator in the Minneapolis area. He has seen many of his clients find creative ways to accumulate the cash and get their home purchase rolling.
“We have two different types of clients. We have those who work with financial planners. They usually have a solid down payment and resources to maintain a house once they buy it,” he says.
Check your home buying eligibility. Start here (Nov 12th, 2026)
Work out how much money you need for a down payment
Then there are the others. He works with them to strategize how they can come up with the down payment. That’s because they usually don’t have a stash of cash or sometimes a sense of how to start saving.
“There is a big gap in America as a whole when it comes to savings. People don’t have the savviness to save first and then budget the rest of their stuff off the rest of the money,” he says.
Many times, people come to his office for a mortgage pre-approval before ever figuring out the dilemma of a down payment.
“But I don’t want to tell them what they can afford. This is their life. They have to figure that out. So to help them, I question them on how much do they want to pay each month, how much they are paying now for housing and then back into a purchase price,” he says.
That’s when they can figure out how much down payment they need. Then their minds start working on how to come up with that money.
How to get money for a down payment
Some of the ways he has seen people get that down payment include:
Down Payment Gift Money: It’s a way people can get into a house when they have no savings, he says. It is an option if you have people that can give you the money. But documentation is very important on this issue. If a parent, grandma or whoever gives you the money, you need a gift letter signed by the donor. You also need to validate it with a copy of the check and your deposit receipt into your bank account.
Fannie Mae and Freddie Mac do not require any of your own money on a one-unit primary home. As a result, the whole down payment can be a gift. Fannie Mae asks for 5% of your own funds on a two- to four-unit home or second home above 80% LTV. At 80% LTV or less, a buyer who receives the full 20% down payment as a gift needs none of their own money. Some lenders add their own limits, so ask your lender. With an FHA loan, the entire 3.5% down payment can come from a gift.
Gift of Equity: Erickson has a recent client who is buying a house from her immediate family’s trust. The trust has agreed to sell the home worth $150,000 to her for $75,000. So, instead of any cash changing hands, it’s called a gift of equity. “The woman doesn’t have to come up with the money herself, and the family is happy because the home is staying in the family,” he says.
Sell assets, save or earn extra income
Sell Something: Do you have an amazing ruby ring left to you by your dear aunt? Or do you have a sports car tucked away in the garage? Maybe you don’t drive it anymore because the whole family doesn’t fit in it. You can sell those precious items to raise the money for a down payment. In effect, you trade them for something you really want and will use: a house. But make sure you can prove that the car, jewelry, gun collection or whatever you are selling is actually yours. Plus, get a bill of sale, copy of the check from the purchaser and a copy of the deposit slip. Documentation is everything when it comes to putting money in the bank for a down payment, Erickson says.
Just Start Saving: “If I could talk with potential clients a year in advance, I could advise them about starting a savings account for a down payment and putting a certain amount of money away each month,” Erickson says. “If you set it up direct deposit from your employer, you don’t even have to think about it.”
Get a Part-time Job: Your weekends are free. So take a temporary job, hopefully in some profession that you like. Just put away those checks into your savings. Keep all your pay stubs and deposit slips.
Borrow the money or cash in investments
Loan Secured by an Asset: An unsecured personal loan or a credit card line of credit won’t work. Fannie Mae and FHA do not accept them as a source of down payment funds. A loan secured by something you own is different. Fannie Mae accepts borrowed funds secured by an asset such as a car, artwork, stocks or a 401(k). FHA accepts a loan secured by a financial asset or by real estate other than the home you’re buying. Check with your lender about their rules. “If you own your truck or car free and clear, you can possibly put a loan on that, and have a down payment,” he says.
Borrow from Your 401(k): Even people who don’t save regularly often have a 401(k) from which to borrow down payment money. “This is becoming somewhat popular,” Erickson says. “You have to pay it back though, and it’s within a few years. We usually strongly discourage them not to do that because they are taking money out of the market,” says Erickson. Under IRS rules, a plan loan generally must be repaid within five years. A plan may allow longer for a loan used to buy your principal residence. An IRA does not allow loans at all.
Cash in Stocks, Life Insurance: Some of Erickson’s clients have liquidated stocks, bonds and IRAs or tapped the cash value of life insurance policies. “With whole life policies, it has to be a certain number of years that you have been paying in before you can cash out,” he says.
Check your home buying eligibility. Start here (Nov 12th, 2026)
