Can You Use a Personal Loan for a Down Payment? FHA and Fannie Mae Rules

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: for an FHA loan or a conventional loan sold to Fannie Mae, no. Both rulebooks list unsecured personal loans as unacceptable funds for the down payment (HUD Handbook 4000.1; Fannie Mae B3-4.3-17). Funds borrowed against an asset you own, gifts from acceptable donors and some assistance programs are treated differently. Below are the rules in the words of each source, with the section and date. Other loan programs have their own rules. This is general information, not legal advice.

FHA loans: what HUD Handbook 4000.1 says

The Minimum Required Investment, your own cash contribution, is at least 3.5 percent of the Adjusted Value of the property, and it must not come from the seller, anyone who benefits from the sale, or anyone they reimburse (Handbook 4000.1, II.A.4.d.ii, HUD).
A collateralized loan, one fully secured by a financial asset of yours such as a deposit account, certificate of deposit, investment account or real estate other than the home you are buying, may be used, and the lender reduces that asset by the amount borrowed. Only an independent third party may provide it (II.A.4.d.iii(K)(1), HUD).
The same section lists unacceptable borrowed funds: unsecured signature loans, cash advances on credit cards, borrowing against household goods and furniture, and other similar unsecured financing (HUD).

Version: Handbook 4000.1, Update 18, issued August 12, 2026 (HUD). HUD revises the handbook, so check the current version before you rely on a section.

Conventional loans: what the Fannie Mae Selling Guide says

Selling Guide section (date)	What it says
B3-4.3-17, Personal Unsecured Loans (09/20/2010)	Personal unsecured loans are not an acceptable source of funds for the down payment, closing costs, or financial reserves. Its examples: signature loans, lines of credit on credit cards, and overdraft protection on checking accounts.
B3-4.3-16, Credit Card Financing and Reward Points (08/04/2021)	Under no circumstances may credit card financing be used for the down payment. Reward points converted to cash before closing are allowed.
B3-4.3-15, Borrowed Funds Secured by an Asset (10/30/2009)	Funds borrowed against an asset such as a car, real estate, savings, stocks or a 401(k) are acceptable. The monthly payment counts as debt, unless the loan is secured by your financial assets.
B3-4.2-02, Depository Accounts (12/14/2022)	The lender must investigate any indications of borrowed funds. A single deposit over 50% of your total monthly qualifying income is a large deposit, and on a purchase it must be documented if the funds are needed to close.

Sources for the table: B3-4.3-17, B3-4.3-16, B3-4.3-15 and B3-4.2-02, read October 30, 2026. Borrowing against your own asset is compared in secured vs unsecured personal loans and 401(k) loan vs personal loan.

A new loan also raises your debt-to-income ratio

Even a loan you take for something else counts. Fannie Mae's DTI ratio is your total monthly obligations, including the new mortgage payment, divided by your monthly income. Its maximum is 36% for manually underwritten loans, up to 45% with the credit score and reserves in its Eligibility Matrix, and 50% for loans underwritten through its automated system (Fannie Mae B3-6-02).

Example only, our calculation: $6,000 in gross monthly income, $300 in existing debt payments and a $1,800 planned mortgage payment make $2,100, a DTI of 35.00%. A $10,000 personal loan over 24 months at the August 2026 average of 11.90% for a 24-month personal loan (Federal Reserve G.19) adds $470.27 a month, which makes $2,570.27 and a DTI of 42.84%. That is past the 36% manual limit above. How to work out your own ratio is in our DTI guide and calculator.

Gift funds: the documentation

FHA: gifts may 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 or public entity with a homeownership program for low- or moderate-income families or first-time homebuyers. Cash on hand is not an acceptable source of donor gift funds (II.A.4.d.iii(F), HUD).
FHA gift letter: signed and dated by the donor and you, with the donor's name, address and telephone number, the relationship, the dollar amount, and a statement that no repayment is required. The lender also documents the transfer, for example with the donor's bank statement showing the withdrawal and evidence of the deposit into your account (HUD).
Fannie Mae: gifts from an acceptable donor (a relative, or a non-relative with a familial relationship as the guide defines it) may fund all or part of the down payment on a principal residence or second home. For a one-unit principal residence no contribution from your own funds is required; for a two- to four-unit principal residence or a second home above 80% loan-to-value you must put in 5% of your own (Fannie Mae B3-4.3-04).
Fannie Mae gift letter: signed by the donor, with the actual or maximum dollar amount, the donor's statement that no repayment is expected, and the donor's name, address, telephone number and relationship to you (Fannie Mae B3-4.3-04).

A gift that is really a loan you will repay does not meet either definition, since both require that no repayment be expected.

Down payment assistance and housing counselors

FHA does not approve down payment assistance programs run by charitable organizations such as nonprofits; the lender must check that a gift from one meets FHA requirements and that the transfer is documented (II.A.4.d.iii(I), HUD). To find programs near you and get advice on buying a home, search for a HUD-approved housing counseling agency by ZIP code through the CFPB tool, which is powered by HUD's list (CFPB). Check each agency's services, since not every counselor offers all of them.

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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.