Can You Borrow Money for The Down Payment

 In Common Questions, Qualifying for a Mortgage

We are often asked if a home buyer is allowed to borrow money for the down payment on a house.  The answer is yes, with certain restrictions.  

Here is what you need to know.

If you own an asset, such as a 401(K), IRA, CD, stocks, bonds, etc., and you use that asset as security for a loan, lenders are not required to include the loan payment as part of your monthly debt obligations.  In other words, borrowing money from one of these types of accounts will not affect your debt-to-income ratio (DTI). Your DTI is the measure lenders use to determine how large a mortgage you can qualify for.

All of these types of accounts are considered to be liquid assets, which means you can quickly and easily turn them into cash.  If you borrow money secured by a liquid asset, it does not affect how large a mortgage you can get because we do not have to count the debt repayment against you.

However, if you borrow money that is secured by other real estate you own, or is secured by any other non-liquid asset, lenders do have to include the monthly payment in your DTI.  

Also, if you borrow money that is not secured by an asset you own, such as getting a cash advance from a credit card account, or taking out a personal, unsecured loan, lenders have to count the payment against you in your DTI.

It’s important to remember that down payment requirements are typically not as high as most people think, so make sure you contact us before you take out a loan that you think you need for your down payment.

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