Should You Get a Personal Loan for a Home Down Payment?

Buying a home is one of the most exciting times in your life. However, it can also be stressful. It’s a big financial commitment. On top of that, many lenders demand that you have at least a 20% down payment before they allow you to get a mortgage. If you’re looking for ways to meet this requirement, consider that taking out a personal loan isn’t typically an option.

The FHA and conventional mortgage requirements clearly state that personal loans are not eligible for down payments, even if you have excellent credit. Even if you can find a lender that will accept your application, taking out a personal loan for your down payment is rarely the best choice.

Why Personal Loans aren’t the Best Option for Down Payment

Most scenarios where you might consider using a personal loan for a down payment involve purchasing a home for less than you can afford. While you’re borrowing to make your down payment, your loan-to-value ratio will be higher than it should be. In this case, a personal loan for a down payment is a bad decision because you’re going into debt to do something that should be a significant investment.

A higher loan-to-value ratio means a higher interest rate, a higher down payment requirement, and a higher monthly payment. Using a personal loan to buy a home can have a significant negative impact on your financial future.

In addition, the increased debt from a personal loan to make a down payment will cause your credit score to drop.

What to Do If You Can’t Afford a Down Payment

When trying to buy a house, most lenders will not accept personal loans for down payments. However, if you can’t afford to put 20% down, you may be able to get a loan on your down payment. Your first choice should be to budget in advance and save up some money for the down payment, but if that’s not an option, consider some of these alternatives:

If you qualify for a special program, you may be able to get down payment assistance.

  • Check whether you qualify for a Federal Housing Authority (FHA), Agriculture Department (USDA), or Department of Veterans Affairs (VA) Loan.
  • Talk to your lender about putting less than 20% down. If you can find a lender who will work with you and accept your loan application, the FHA, USDA, and VA allow you to put 3% down.
  • If you don’t qualify for a low-down-payment loan or don’t want to take out a loan, talk to your lender about the possibility of a gift from someone close to you.
  • If you’re not able to receive a gift from a relative, you can ask a friend or close family member for a loan secured by a title or deed of trust on the property. If the lender is willing to work with you and accept your mortgage application, you can put down as little as 3% and still get the loan.


When buying a home, using a personal loan for a down payment is seldom a good idea. It can hurt your credit score and put you into debt to pay for something that should be an investment.

If your down payment requirements are preventing you from buying a home, you should explore other options. Talk to your lender about putting less than 20% down, explore FHA, USDA, and VA programs, or explore options for getting a gift from a friend or family member.

Mid-Town Finance, located in Birmingham, Alabama, offers a variety of loan sizes to fit your needs. We will review our different options, and upon approval, put clients on an affordable payment plan. We do not make payday or title pawn loans, and there are no hidden fees. Contact us to learn more about your options. Get your, small loans or personal loans today!