Can You Use a Personal Loan as a Down Payment?

12/27/19 Ricky Baizas

People in the market for a new home may face a challenge when it comes to securing the cash needed for a down payment on their mortgage.*


That’s because most lenders ask mortgage applicants to put down at least 3% of the property’s value price. In some cases – depending on the type of loan and the applicant’s credit history – the lender may request a down payment equaling 5% to 20%.

The Importance of the Down Payment

Traditional lenders see down payments at in least part as a show of good faith on behalf of the buyer. If a property ends up in foreclosure, the homeowner runs the risk of forfeiting their down payment. This potential loss serves as one more incentive to keep owners current on their mortgage payments. Lenders like knowing borrowers have a stake in the game.


But it’s not simply enough to have cash to put down on a home. Lenders want to see the funds belong to the borrower, free and clear. So using a personal loan for down payment probably will not work because it means the applicant is taking on additional debt. As a result, lenders scrutinize an applicant’s credit report, as well as several months of financial statements to ensure the down payment belongs to the applicant and has not been borrowed.

How Can a Personal Loan Help With a Down Payment?

This does not mean the borrower has to completely rule out using a personal loan for mortgage down payment. With careful planning, the prospective home owner can leverage a personal loan to get their financial affairs in order before beginning the mortgage-application process.


Numerous factors influence a lender when determining the suitability of a borrower. As mentioned, the lender will look at the candidate’s cash on hand to determine if he or she can manage a down payment. But the lender also considers an applicant’s outstanding debt, especially credit card debt: How much is owed, the monthly payment amounts, the interest rates and other factors are all evaluated.


This is where the careful planning can come in. If a prospective home buyer plans on purchasing a home in the near future, he or she could use a personal loan to pay off and consolidate outstanding debt. By doing this, it can turn multiple payments (with multiple interest rates) into a single, budget-friendly, monthly bill. Also by using a personal loan to pay off costly credit card bills, it may help improve the borrower’s credit score, which lenders also consider when evaluating prospective borrowers.

LoanMe Can Help

Depending on an individual’s situation, applying for a personal loan to consolidate or pay off credit card debt may help to improve their standing in the eyes of a potential lender. With careful planning, the borrower can save money by paying off high-interest credit cards and be better positioned to sock away a few more dollars to be applied to their down payment.


If you dream of owning a home and are concerned that high-interest rate credit card debt may be an obstacle in your path, consider a personal loan from LoanMe. We issue personal loans in amounts from $2,600 – $100,000. Our online loan application process is fast and easy. Best of all, the interest rates we charge are usually far more manageable than those charged by the average credit card issuer.  Plus our loans have no prepayment penalties. A personal loan from LoanMe may be one more step on your path to home ownership.


*This article has been prepared for general information purposes only. The information presented is not legal, financial, tax or accounting advice, is not to be acted on as such, and is subject to change without notice.
Credit approval is subject to LoanMe’s credit standards, and actual terms (including actual loan amount) may vary by applicant. LoanMe requires certain supporting documentation with each new application. If you have any questions regarding this, call us at 844-311–2274. California loans are made pursuant to LoanMe’s California Department of Business Oversight Finance Lenders Law License #603K061. LoanMe also offers loans in certain other states which may have higher minimum loan amounts.
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