The money that usually can't be your down payment is money you borrowed without security (a credit card cash advance, a personal loan, a payday loan), money that really comes from the seller or someone else who profits from the sale, gifts from donors the program doesn't allow, and cash you can't document. Some of those have narrow exceptions, and some have easy, allowed substitutes. The rules exist for two reasons: a down payment that's secretly borrowed means you owe more than the file shows, and a down payment that quietly comes from the seller can inflate the price and leave you with less real equity than the paperwork claims.
Below I'll go through what's off limits, what needs care, what the agency rules actually say for FHA and conventional loans, and the honest alternatives that usually solve the same problem.
The rules behind it, by layer
FHA (HUD)
- Your Minimum Required Investment has protected sources. On an FHA purchase, you need to make HUD's minimum required investment, which keeps the base loan within FHA's maximum loan-to-value of 96.5% of the adjusted value. That money can't come from the seller, anyone else who benefits from the sale, or anyone reimbursed by them (HUD 4000.1 II.A.4.d.ii).
- Seller help is for costs, not the down payment. Sellers, builders, agents and other interested parties can contribute up to 6% of the sales price toward closing costs, prepaids and discount points, but interested party contributions can't be used for your Minimum Required Investment (II.A.4.d.iii(G)).
- Unsecured borrowing is out. HUD lists unsecured signature loans, credit card cash advances, and borrowing against household goods and furniture as unacceptable borrowed funds (II.A.4.d.iii(K)(1)).
- Cash on hand can work, with an explanation. HUD allows cash kept outside a bank if it's deposited in a financial institution or held by the title company, and you explain how you saved it and how long it took. The underwriter judges whether that's reasonable for your income, spending and banking history (II.A.4.d.iii(B)). A gift donor, though, can't use cash on hand as the source of a gift (II.A.4.d.iii(F)).
- Gifts come from a defined list. FHA gifts can come from a family member, your employer or labor union, a close friend with a clearly defined and documented interest in you, a charitable organization, or a government agency with a homeownership program (II.A.4.d.iii(F)).
The rules above are long-standing. They read the same in Update 17 of HUD Handbook 4000.1, the version in effect today, and in Update 18, issued Aug 12, 2026, which lenders must use by Nov 10, 2026.
Conventional (Fannie Mae)
- No interested party money for the down payment. Fannie Mae doesn't permit interested party contributions to be used for the down payment, reserves or minimum borrower contribution. That includes money that flows through a third party or nonprofit from the seller, builder or agent (Selling Guide B3-4.1-02, dated May 7, 2025).
- No credit card financing for the down payment. Some upfront fees like the appraisal can go on a card, but "under no circumstances" can credit card financing be used for the down payment. Reward points converted to cash are a different thing and can be used (B3-4.3-16).
- No personal unsecured loans. Signature loans, credit card lines and overdraft protection aren't acceptable for the down payment, closing costs or reserves (B3-4.3-17).
- No cash on hand, with one exception. Fannie Mae doesn't accept cash on hand for the down payment or closing costs, except on HomeReady loans (B3-4.3-20).
- Sweat equity, generally no. Work you do on the house isn't usually an acceptable source, except in specific HomeReady transactions (B3-4.3-13).
Automated underwriting and our company
DU, LPA and FHA's TOTAL scorecard all verify assets, and their findings list exactly which accounts and documents the underwriter has to see. Our company doesn't add its own asset overlays on top of the agency rules. The rules above are the rules.
Sources that usually can't be used
- A credit card cash advance. Taking a cash advance and depositing it as savings is borrowing money to make the down payment. The bank statement often shows the cash advance, or the card balance jumps by the same amount on the next report. The underwriter excludes it, and the new balance raises your debt ratio.
- An undisclosed personal loan. A loan from a bank, an online lender, a payday lender, or a relative who expects to be paid back is debt. If it's hidden, the file is wrong. If it's disclosed, its payment counts, and the agencies still won't accept unsecured borrowed money as the down payment. FHA does have a narrow path for a family member's loan written as a disclosed second lien that meets HUD's rules (II.A.4.d.iii(J)(3)), which is very different from a handshake loan.
- Seller money disguised as a gift. A seller who gives you money for the down payment, or whose money passes through a relative to you, is making an interested party contribution. Calling it a gift doesn't change what it is, and misrepresenting it on a loan application is fraud. A seller can usually help with closing costs within the program's limits, disclosed on the contract and the Closing Disclosure. See seller concessions.
- Gifts from donors the program doesn't allow. FHA and Fannie Mae each define acceptable donors, and the lists aren't the same. A gift from someone outside the list can't be used, even if it's genuinely a gift. See how gift funds work.
- Undocumented cash. On conventional loans, cash kept at home generally can't be used. On FHA, it can be, but only with a believable explanation and a deposit before closing, so plan for the extra scrutiny.
Sources that need care
- Loans secured by your own assets. A loan secured by something you own is treated as a return of your own equity. Fannie Mae lists cars, real estate, savings, CDs, stocks and 401(k) accounts as possible collateral, counts the payment as a debt, and requires the lender to document the loan terms and that the lender isn't a party to the sale (B3-4.3-15). FHA's version is narrower: the loan has to be fully secured by a financial asset or real estate other than the home you're buying, and only an independent third party can make it (II.A.4.d.iii(K)(1)).
- Retirement money. A 401(k) loan or a withdrawal can usually be a source when it's documented. How the loan payment is treated depends on the program, and taxes or penalties are a question for your tax preparer. See using retirement funds.
- Business funds. If you're self-employed, money in a business account can often be used, but the underwriter will want to know you own the business, can access the money, and that taking it won't hurt the business. Pulling money from a partnership account without your partner's say-so doesn't meet that test.
- Cryptocurrency. Fannie Mae accepts virtual currency only after it's been exchanged into U.S. dollars and held in a U.S. or state regulated financial institution, verified before closing. It can't be your earnest money (B3-4.1-04). HUD's handbook doesn't have a crypto-specific section, so on FHA we'd treat converted funds like any other deposit that needs a paper trail. A balance in an app isn't cash to close until it's converted and documented.
- Large deposits. Any deposit that isn't clearly your paycheck may need a source. That's not an accusation, just the process. See why lenders ask about large deposits.
- Down payment assistance. State and local assistance is acceptable when it meets the first mortgage's rules. See down payment assistance in Texas.
The honest alternatives
Most people who look for a way to use one of the sources above have a better option available:
- A gift from an eligible family member, with a gift letter and a traceable transfer, often a wire straight to the title company.
- A seller contribution toward closing costs, which frees your own cash for the down payment.
- A lender credit, which covers some closing costs in exchange for pricing on the loan.
- TSAHC or TDHCA assistance, if you qualify.
- A different program with a lower minimum down payment.
- A disclosed loan against an asset you already own, where the program allows it.
- Waiting a little to save more, with the money in a documented account.
How the money reaches closing in Texas
Even acceptable money has to arrive in an acceptable form. Texas title rules only let the title company disburse once it has "good funds" (TDI Basic Manual, Procedural Rule P-27). In practice, that usually means a wire or a cashier's check, and each title company sets which forms it'll take for the amount due. The money should come from an account in your name, or from a documented gift donor, so the source in the file matches the money that arrives.
Wire fraud targets this exact step. Criminals send emails that look like they came from the title company or your agent, with new wiring instructions. Before sending any wire, call the title company at a phone number you found yourself, like the one on their website or your contract, and confirm the instructions. A last-minute change in wiring instructions by email is a reason to stop and call.
Fictional example
This example is made up to show how the rules apply.
Brandon is buying his first home in Saginaw with an FHA loan. He's short on his down payment, so he takes a cash advance on a credit card and deposits it into savings. His bank statement shows the advance, and the credit refresh before closing shows the card balance jumped by the same amount. The underwriter can't count the money, and the new card payment raises his ratio. Had he asked first, his aunt could have given him the money as a gift with a signed gift letter and a wire to the title company, which FHA allows from a family member. Same dollars, very different result.
Common confusions
- "They won't notice." Bank statements are read, the credit report is pulled again before closing, and the Closing Disclosure shows where the money came from.
- "Any loan is forbidden." A disclosed loan secured by your own asset can be fine. A silent loan never is.
- "Cash is cash." On FHA, cash at home can work with the right explanation. On conventional, it generally can't. The program matters.
- "A gift from my boyfriend is fine." Maybe. FHA accepts a close friend with a documented interest, and Fannie Mae accepts some non-relatives with a familial-like relationship. Ask before the money moves.
What to have ready
- Complete statements, all pages, for every account holding money for the purchase.
- If a gift is involved, the donor's name, relationship to you, and how the money will be transferred.
- For any asset you might borrow against or sell, the title or account statement.
- For business funds, your ownership percentage and your tax preparer's contact.
- Any assistance program paperwork you've already received.
Next step
The best time to sort out where your down payment comes from is before you write an offer, not the week of closing. Tell me what you've got and where it sits, and I'll tell you what counts and what paper each piece needs. Book a call, or when you're ready, start an application.
Related questions
Sources
Links checked Oct 21, 2026.
- HUD Handbook 4000.1, II.A.4.d.ii and II.A.4.d.iii(B), (F), (G), (J)(3), (K)(1) (Update 17, issued Nov 26, 2025, the version in effect today; Update 18, issued Aug 12, 2026, may be adopted now and must be used by Nov 10, 2026, and does not change the rules cited here): https://www.hud.gov/sites/default/files/OCHCO/documents/40001-hsgh-Update-17.pdf
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (May 7, 2025): https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs
- Fannie Mae Selling Guide B3-4.1-04, Virtual Currency (May 4, 2022): https://selling-guide.fanniemae.com/sel/b3-4.1-04/virtual-currency
- Fannie Mae Selling Guide B3-4.3-13, Sweat Equity (Apr 15, 2014): https://selling-guide.fanniemae.com/sel/b3-4.3-13/sweat-equity
- Fannie Mae Selling Guide B3-4.3-15, Borrowed Funds Secured by an Asset (Oct 30, 2009): https://selling-guide.fanniemae.com/sel/b3-4.3-15/borrowed-funds-secured-asset
- Fannie Mae Selling Guide B3-4.3-16, Credit Card Financing and Reward Points (Aug 4, 2021): https://selling-guide.fanniemae.com/sel/b3-4.3-16/credit-card-financing-and-reward-points
- Fannie Mae Selling Guide B3-4.3-17, Personal Unsecured Loans (Sept 20, 2010): https://selling-guide.fanniemae.com/sel/b3-4.3-17/personal-unsecured-loans
- Fannie Mae Selling Guide B3-4.3-20, Anticipated Savings and Cash-on-Hand (Apr 1, 2009): https://selling-guide.fanniemae.com/sel/b3-4.3-20/anticipated-savings-and-cash-hand
- Fannie Mae Selling Guide B3-4.3-04, Personal Gifts (Feb 4, 2026): https://selling-guide.fanniemae.com/sel/b3-4.3-04/personal-gifts
- Texas Department of Insurance, Basic Manual of Title Insurance, Procedural Rule P-27 (good funds): https://www.tdi.texas.gov/title/titlem4d.html
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026