For many, the dream of homeownership is a huge goal, but it often comes with an equally huge hurdle: the down payment. According to a National Association of Realtors' 2024 Study, the median down payment for first-time homebuyers was 9% — the highest percentage since 1997.
With home prices rising and savings stretched thin, it’s tempting to look for fast cash solutions — like a credit card cash advance or a payday loan. After all, cash advances are quick, accessible, and don’t require a lengthy approval process. But when it comes to buying a home, things get more complicated. Mortgage lenders have strict rules about where your down payment money can come from and borrowed funds like cash advances usually don’t make the cut.
In this guide, we’ll explain why using a cash advance for a mortgage down payment is problematic, what the rules say, and what the safer alternatives are.
Why cash advances usually don’t work for mortgage down payments
A cash advance may not be an ideal choice for a mortgage down payment because when you apply for a mortgage, a lender's job is to check that you are a reliable, low-risk borrower. They can look at every detail of your finances, including the source of your down payment and its stability. Here's a deeper dive into what lenders look for:
Most mortgage lenders prohibit borrowed down payment funds
Lenders — whether you’re applying for an FHA, VA, or conventional loan — typically require that your down payment come from acceptable sources. These typically include personal savings, proceeds from the sale of a home, or documented gifts from family. What’s not allowed? Borrowed funds like personal loans, payday loans, or credit card cash advances.
According to Experian, lenders examine the source of your down payment to ensure it’s not adding to your debt load. If the money is borrowed, it affects your debt-to-income ratio and may disqualify you from the loan entirely.
Lenders also require documentation — like bank statements and gift letters — to verify that your down payment is legitimate and doesn’t come with repayment obligations. A cash advance, by definition, is a short-term loan, and that’s a red flag in mortgage underwriting.
High costs and immediate repayment obligations
Cash advances can be expensive. Credit card cash advances often come with fees of 3%–5% of the amount borrowed, and APRs can be around 30%. Unlike regular purchases, interest on a cash advance starts accruing immediately — there’s no grace period.
As SmartAsset explains, using a cash advance to cover homebuying costs can quickly spiral into a financial burden. If you’re borrowing thousands for a down payment, you’ll face steep repayment terms that clash with the long-term nature of a mortgage.
Impact on your credit score and debt-to-income ratio
Taking out a large cash advance increases your credit utilization ratio — the amount of credit you’re using compared to your total available credit. This can lower your credit score and raise concerns for mortgage lenders.
Additionally, the new debt affects your debt-to-income (DTI) ratio, a key metric lenders use to assess your ability to repay the mortgage. A high DTI can result in loan denial, even if you meet other qualifications.
Can a cash advance still be considered?
While it's clear why using a cash advance for a mortgage down payment may not be feasible, it's worth addressing the core question directly. For standard, government-backed, or conventional mortgage loans, an exception for this type of funding is almost nonexistent. These rules are in place to protect both the lender and the buyer from risky financial practices that could lead to default.
There are rare scenarios where a private lender or a unique seller-financing agreement has different rules. But these are not the norm and come with their own set of risks and often unfavorable terms. Financial advisors and mortgage experts advise against using high-interest, short-term borrowing options, like a cash advance, for a mortgage down payment. But there are other borrowing types like personal Loans and pay access, that are also unconventional that could be looked at.
Safer alternatives for mortgage down payments
If you're struggling to save for a down payment, you have options that are safer and more lender-friendly than a cash advance. These include:
Down payment assistance programs
Many states, counties, and cities have down payment assistance (DPA) programs designed to help first-time homebuyers. These can be grants that you don't have to repay or forgivable loans with very low-interest rates. They often have income limits, but they are a legitimate way to get the funds you need to pay a mortgage down payment. A quick search for "down payment assistance" in your area can reveal valuable resources.
Savings and high-yield accounts
The most traditional and lender-approved method is to save the money yourself. If you haven't started, it's never too late. Automate your savings by setting up a direct deposit from each paycheck into a high-yield savings account. This way, your money grows over time. A lender likes to see a steady stream of savings, as it shows you are a responsible financial planner.
Selling assets
If you own a vehicle, collectibles, or other valuables, selling them can provide a lump sum for your down payment. This method doesn’t add to your debt and is fully compliant with lender guidelines.
Retirement account loans or withdrawals
Some retirement plans, like a 401(k), allow you to borrow against your balance. You must repay the loan with interest, but it doesn’t show up on your credit report. A first-time homebuyer can also make a tax-free and penalty-free withdrawal of up to $10,000 from an IRA. Be aware that this money will no longer be growing for your retirement.
Family gifts
If you have a family member who can help, a gift is one of the most common and acceptable sources of funds. However, lenders have strict rules. The donor must sign a gift letter stating that the money is a true gift, not a loan, and they can’t be paid back. The lender will also need to see proof of the funds in the donor's bank account to verify they are their own.
What to do if you’re short on funds after moving in
Even if you manage the down payment, post-move expenses can be overwhelming. Prioritize essential costs like utilities, groceries, and home maintenance. Look into local assistance programs or early wage access (EWA) tools like the EarnIn app's Cash Out1 tool, which can help bridge short-term gaps for eligible users by allowing them to access a portion of their earned wages before their official payday. For instance, Cash Out1 allows you to get up to $150/day, with a max of $750 between paydays. No interest, no mandatory fees, and no credit checks.
Plan ahead to avoid risky borrowing
Ultimately, the best way to avoid a tricky situation with a cash advance for a mortgage down payment is to plan ahead. Rather than exploring last-ditch efforts, focus on building your financial foundation early. Research down payment assistance programs, automate your savings, and get your finances in order long before you start house hunting. The right preparation avoids the need for high-cost, high-risk borrowing.
EarnIn offers helpful planning tools like credit monitoring2 and financial calculators3 to help you stay on track and avoid high-cost borrowing.
By taking these steps, you’ll not only be a more attractive candidate for a mortgage, but you’ll also feel more confident and prepared for the largest financial decision of your life.
Resources
- HUD Down Payment Assistance: A great starting point for finding resources in your area.
- Fannie Mae HomeReady Program: An excellent option for low-income buyers with a low down payment requirement.
- Bankrate Mortgage Calculator: Plan your monthly mortgage payments and test different scenarios before you buy.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
EarnIn is a financial technology company, not a bank. Banking services are provided by our bank partners on certain products other than Cash Out.
1
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed may not be available at all times and/or to all customers. Restrictions and terms apply; see the Lightning Speed Fee Table and Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.
2
Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don't be surprised if your lender uses a score that's different from your VantageScore 3.0. Learn more.3
The calculations provided are based on estimates and should be used for informational purposes only. Please be aware that comparisons may not be 100% accurate. The insights and data presented do not constitute financial advice, and we recommend consulting with a qualified financial advisor for personalized guidance.4
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed may not be available in all states and/or to all customers. Restrictions and terms apply. See the Lightning Speed Fee Table for details.
