Borrowed funds for a down payment are allowed on conventional loans when the loan is secured by an asset the borrower owns, such as a 401(k), another property, stocks or a car. Its payment counts in the debt-to-income ratio unless a financial asset secures it. Unsecured loans, including credit card advances, are not an acceptable source.
When are borrowed funds for a down payment allowed?
Borrowed funds for a down payment are allowed when the loan is backed by collateral the borrower owns and the lender can document the loan's terms and the transfer. Fannie Mae accepts secured borrowing from a lender who is not a party to the sale. It rejects personal unsecured loans for the down payment, closing costs or reserves.
The secured rule comes from Fannie Mae's Selling Guide topic B3-4.3-15, Borrowed Funds Secured by an Asset. It lists automobiles, artwork, collectibles, real estate and financial assets as collateral, with savings accounts, certificates of deposit, stocks, bonds and 401(k) accounts as examples of financial assets. FHA, VA and non-QM programs have their own rules, so confirm before quoting.
The three documents Fannie Mae asks for
- The terms of the secured loan.
- Evidence that the party lending the money is not a party to the sale.
- Evidence that the funds were transferred to the borrower.
Why collateral matters
Secured borrowing is treated differently because the borrower is spending their own wealth in another form. A 401(k) loan moves money the borrower already owns. An unsecured loan creates new debt with nothing behind it, which raises the risk that the borrower starts the mortgage overextended.
401(k) loans as borrowed down payment money
A 401(k) loan is a loan from the borrower's own retirement plan, repaid through payroll. It is one of the cleanest borrowed sources for a down payment because the plan documents the terms and the deposit is easy to trace. Fannie Mae treats loans secured by financial assets, including 401(k) accounts, more kindly than other secured debt.
What to collect
- The plan's loan statement or approval showing amount, rate and repayment
- The plan statement showing the vested balance before the loan
- The bank statement showing the loan proceeds arriving
Reserves after a 401(k) loan
Under B3-4.3-15, if the borrower also counts that same account toward reserves, the lender must reduce its value by the loan proceeds and any fees. A $90,000 vested balance with a $30,000 loan leaves $60,000, less fees, for reserves.
A loan versus a withdrawal
Borrowing from a 401(k) and withdrawing from it are different events with different tax and paperwork results. The post on using a 401k withdrawal for a down payment covers the withdrawal route, including the taxes and penalties that shrink the usable amount.
HELOCs and other real estate secured down payment loans
A HELOC or home equity loan on another property is a real estate secured source for a down payment. It works when the borrower owns a property with equity, such as a current home they keep or a rental. The lender documents the HELOC terms and the draw, and the new payment joins the borrower's monthly debts.
Documents for a real estate secured loan
- The HELOC agreement or closing documents showing the credit limit, rate and terms
- A statement or draw confirmation showing the amount taken
- The bank statement showing the draw deposited, or the wire to the closing agent
When the HELOC has no required payment
Some lines of credit let the borrower pay nothing during a draw period, or interest only on the balance. B3-4.3-15 says that if a secured loan does not require monthly payments, the lender must estimate a reasonable equivalent payment and count it as recurring debt. A HELOC with a zero minimum still adds a payment to the ratio.
Timing the draw
Draw the HELOC funds close to the time they are needed, and keep the trail simple: one draw, one deposit, one statement. A draw that lands, moves to savings and then moves again turns a single transfer into three entries to explain.
Down payment loans secured by stock, cars or collectibles
Down payment loans secured by stock, a paid-off car, art or collectibles follow the same secured rule as a HELOC. The borrower pledges something they own, a lender advances cash against it, and the mortgage lender documents the terms and the transfer. The collateral type changes the paperwork, not the principle.
Securities-based loans
A brokerage firm may lend against a portfolio through a margin loan or a pledged asset line. These are loans secured by financial assets. Fannie Mae's topic says monthly payments on loans secured by the borrower's financial assets do not have to be counted as long-term debt. The same topic says that if the borrower also uses that asset for reserves, its value is reduced by the loan proceeds.
Shares from equity compensation
Vested shares from restricted stock units are ordinary stock once delivered, so they can secure a loan or be sold. Unvested units belong to the employer until they vest. The post on using RSUs for a down payment explains when shares count and how the vesting schedule appears in the file.
Auto title and collectible loans
A loan against a paid-off car or a piece of art is allowed under B3-4.3-15 if it comes from a lender who is not a party to the sale and the transfer is documented. The payment counts as debt. Underwriters look closely at the lender's identity, because private loans between individuals are harder to verify.
How does each borrowed down payment source change DTI?
Each borrowed down payment source changes DTI according to what secures it. Under Fannie Mae's rule, secured loan payments count as debt. Payments on loans secured by the borrower's own financial assets, such as a 401(k) or brokerage account, need not count as long-term debt. A secured loan with no set payment gets an estimated one.
| Borrowed source | Collateral | Key documents | Payment in DTI (Fannie Mae) |
|---|---|---|---|
| 401(k) loan | Retirement account | Plan loan terms, deposit | Not required as long-term debt |
| Securities-based loan | Brokerage holdings | Loan terms, deposit | Not required as long-term debt |
| HELOC or home equity loan | Another property | HELOC agreement, draw, deposit | Counted; estimated if no payment due |
| Auto title loan | Paid-off vehicle | Loan terms, title pledge, deposit | Counted |
| Personal unsecured loan | None | Not acceptable | Not acceptable as a source |
What this means for a tight file
A borrower near the DTI limit may qualify with a 401(k) loan and fail with a HELOC for the same amount, because only the HELOC payment counts. That is a structuring choice worth raising early, before the borrower draws on the wrong source.
Irregular earners
Borrowers with lumpy income, such as content creators paid by platforms and sponsors, sometimes lean on borrowing to smooth out a down payment. The secured rules above still apply, and so does the income side. The post on content creator income verification covers how lenders count those payouts before any new debt is added.
Unsecured loans that are banned as down payment money
Unsecured loans are banned as down payment money on Fannie Mae loans. The Selling Guide topic B3-4.3-17, Personal Unsecured Loans says they are not an acceptable source for the down payment, closing costs or reserves. It names signature loans, lines of credit on credit cards and overdraft protection on checking accounts.
How underwriters spot unsecured borrowing
Unsecured borrowing usually shows up on the statements before it shows up on the credit report:
- A deposit from an online lender or bank labelled as a loan disbursement
- A transfer from a credit card account into checking
- A checking balance that dips below zero and is covered by overdraft protection
- A new monthly debit to a lender that did not exist in earlier months
A recent large deposit with no clear source draws the same scrutiny, because the underwriter has to rule out an undisclosed loan. TrueBankFlow flags large or out-of-pattern deposits and overdrafts with the date and statement line, which puts these entries in front of the reviewer instead of leaving them for the underwriter to find.
Gifts that are really loans
Money from a relative that must be paid back is a loan, not a gift, even if no bank is involved. If the borrower signs a gift letter for money they intend to repay, the file is misrepresented. Treat any expected repayment as borrowed money and apply the rules above, which a private unsecured loan will fail.
A borrowed down payment traced through the statements
A borrowed down payment trace follows the loan from its source to the closing. The example below is invented. It shows a borrower who takes a 401(k) loan and a small HELOC draw for a $70,000 down payment, and how each entry is matched in the file.
The entries
| Account (example) | Date | Entry | Amount |
|---|---|---|---|
| 401(k) plan | 2026-09-03 | Loan issued | $40,000 |
| Borrower's checking | 2026-09-05 | Deposit from plan administrator | +$40,000 |
| HELOC on rental | 2026-09-10 | Draw | $30,000 |
| Borrower's checking | 2026-09-10 | Transfer from HELOC | +$30,000 |
| Borrower's checking | 2026-10-01 | Wire to closing agent | -$70,000 |
What the underwriter does with it
- Matches the $40,000 plan loan to the deposit two days later using the plan's loan statement.
- If the 401(k) is also counted toward reserves, reduces its value by the $40,000 loan and any fees.
- Leaves the 401(k) loan payment out of DTI, as Fannie Mae allows for loans secured by financial assets.
- Matches the $30,000 HELOC draw to the transfer the same day using the HELOC statement.
- Adds the HELOC payment to DTI. If the HELOC is interest only at a 9% rate, used here only as an example, the payment is about $225 a month.
- Confirms the wire to the closing agent equals the two sources combined.
Every entry has a matching document, so the borrowed money passes. Had the $30,000 come from a credit card transfer instead, the same trace would end at step 4 with an unacceptable source. To see these deposits and transfers laid out across months before submission, get started with TrueBankFlow.