How down payment money actually moves to the seller
Your down payment does not go to the seller on the day you make an offer. It moves in stages, and the path depends on where you are in the buying process. At offer time, you send earnest money—usually 1 to 3 percent of the purchase price—to an escrow account held by a title company or real estate attorney. This shows the seller you are serious. At closing, the rest of your down payment (plus your loan amount) flows from your lender and your own accounts into escrow, where it is split: your down payment goes to the seller, your loan goes to pay off any existing mortgage on the property, and closing costs are paid to various vendors.
The timing matters because your money sits in escrow for weeks, not in your hands or the seller's. You cannot touch it, and the seller does not receive it until the deed transfers. If the deal falls through before closing, escrow rules determine who gets the earnest money back—usually you keep it only if the seller breaches the contract or the inspection reveals a major problem you did not agree to.
Key Takeaways
- Earnest money (1 to 3 percent of purchase price) goes to escrow when you make an offer; the rest of your down payment is wired at closing.
- Your lender will require a bank statement or other proof that the down payment money is yours and not a loan, because borrowed down payments increase default risk.
- Down payment funds must clear your bank account before closing, which means wire transfers or cashier's checks, not personal checks.
- If you receive a gift for your down payment, the giver must sign a gift letter stating it is not a loan you have to repay.
- Closing costs (inspection, appraisal, title insurance, attorney fees) are separate from your down payment and typically run 2 to 5 percent of the purchase price.
Where the money comes from and what your lender will ask
Your lender will ask for bank statements covering the last 60 days before closing to verify that your down payment money is yours. If you have a large deposit that appeared recently, they will ask where it came from. If you say a family member gave it to you, they will require a gift letter—a signed statement from that person saying the money is a gift, not a loan you have to repay. Without the letter, the lender will count the gift as debt on your credit application, which can lower the loan amount you may have access to for.
If you are pulling money from savings, investments, or a retirement account, the path varies. Savings and checking accounts are straightforward—just show the statements. Stocks or mutual funds must be sold first, which takes 3 to 5 business days to settle. Retirement accounts like a 401(k) or IRA have tax consequences if you withdraw early; some plans allow loans against your balance instead, which avoids the tax hit but adds a monthly payment to your debt load. A mortgage lender will factor in any 401(k) loan payment when calculating whether you can afford the mortgage.
Down payment assistance programs run by nonprofits, state housing agencies, or your employer may provide grants or forgivable loans. These are real money that reduces what you have to pay out of pocket. Ask your lender which programs they have worked with, because some require the lender's sign-off on the loan terms.
How to move the money without delays or fraud holds
Do not send your down payment by personal check or ACH transfer from your bank account. Lenders and title companies will not accept them because they cannot verify the funds have actually cleared. Use a wire transfer or a cashier's check instead. A wire transfer moves money in one business day and leaves a clear record; a cashier's check is a bank-issued check drawn on the bank's own account, not yours, so it clears instantly.
Wire transfers carry fraud risk. Scammers send fake emails that look like they come from your lender or title company, asking you to wire funds to a different account. Before you wire anything, call your lender or title company using the phone number on your official loan documents—not a number in an email. Confirm the wire instructions by phone. If you wire to the wrong account, the money is gone; banks do not reverse wires the way they do with credit card fraud.
Cashier's checks are safer from fraud but slower if you need one issued the day before closing. Order it at least one business day ahead. Bring your ID and the exact amount; the bank will issue the check on the spot. Do not sign it until you hand it to the title company at closing.
Timing: when funds must be in escrow
Earnest money must reach escrow within 1 to 3 business days of your offer being accepted, depending on your contract. If you miss this deadline, the seller can cancel the deal or sue you for breach. Set up the wire or cashier's check the same day you make the offer.
Your remaining down payment and closing costs must be wired or delivered by the day before closing, or on closing day itself if your lender and title company coordinate the timing. Your lender will tell you the exact amount and the wire instructions in a document called the Closing Disclosure, which you receive at least three business days before closing. Do not wire money until you have this document in hand and have verified the amount and account by phone.
If your wire does not arrive by closing day, closing is delayed. Your lender will not fund the loan, the title company will not transfer the deed, and you will not get the keys. This is rare but happens when wires are sent to the wrong bank or when a bank processes the wire slowly. Wire early enough to allow for a one-day delay.
What happens if you do not have the full down payment yet
If you are short on cash before closing, you have a few options. You can ask the seller for a price reduction or closing cost credit, which lowers the amount you need to bring. You can delay closing until you have saved more. You can borrow against your home equity if you already own a property, though this adds another loan payment. You can ask a family member for a gift, with a signed gift letter.
You cannot borrow the down payment from a credit card, personal loan, or other lender without telling your mortgage lender. If you take out a new loan before closing, it shows up on your credit report and increases your debt-to-income ratio, which can cause your lender to deny the mortgage or reduce the loan amount. If you hide the loan and the lender finds out during the final credit check, they can cancel the loan even at closing.
Some lenders offer down payment assistance programs or allow lower down payments (3 to 5 percent instead of 20 percent) if you accept a higher interest rate or pay mortgage insurance. Ask your lender what programs are available before you assume you need to find more money.
Closing costs are separate from your down payment
Your down payment is the percentage of the purchase price you are paying out of pocket. Closing costs are the fees charged by the lender, title company, appraiser, inspector, and attorney. They typically run 2 to 5 percent of the purchase price and are paid at closing, not before. Your lender will give you an estimate of closing costs within three business days of your application, and a final accounting in the Closing Disclosure three days before closing.
Common closing costs include the loan origination fee (paid to your lender), appraisal fee (paid to the appraiser), title insurance (paid to the title company), property survey (if required), homeowners insurance (paid to your insurance company), property taxes (prorated based on closing date), and attorney fees (if your state requires an attorney at closing). Some of these are negotiable; some are set by law or regulation.
You can ask the seller to pay some of your closing costs as part of the purchase agreement. This is called a seller concession. The seller agrees to cover a portion of closing costs in exchange for a higher purchase price or to make the deal more attractive to you. Your lender will allow this up to a certain percentage, usually 3 to 6 percent of the purchase price, depending on your loan type and down payment size.
If the deal falls through after you have paid earnest money
Earnest money is held in escrow and released based on the contract terms. If you walk away without a valid reason, the seller keeps it. Valid reasons include a failed inspection (if your contract includes an inspection contingency), a failed appraisal (if your contract includes an appraisal contingency), or the seller breaching the contract. If the lender denies your loan application, your contract usually includes a financing contingency that lets you cancel and get your earnest money back.
If you and the seller dispute who gets the earnest money, the escrow holder (title company or attorney) will not release it until both of you agree or a court orders them to. This can take weeks or months. To avoid this, make sure your contract is clear about what happens if the deal falls through—which contingencies protect you, and what happens if neither side is at fault.
Frequently Asked Questions
Can I use a credit card to pay my down payment?
No. Lenders will not accept credit card payments for down payments because credit card transactions are considered debt. If you put the down payment on a credit card and then pay it off with a bank transfer, the lender will see the credit card charge on your credit report during the final credit check and may deny the loan. Pay from savings, a gift, or a down payment assistance program instead.
What if I wire the down payment to the wrong account?
Contact your bank immediately and ask them to recall the wire. Banks can attempt a recall within 24 hours, but success is not may provide if the receiving bank has already processed it. If the recall fails, you will need to contact the recipient directly and ask them to send the money back. This is why calling to verify wire instructions before sending is critical. If you cannot recover the money, you may not be able to close on time.
Do I have to pay the full down payment at closing, or can I pay part of it earlier?
Earnest money is paid when you make an offer. The rest of your down payment is paid at closing. You cannot pay part of it early to your lender or the seller; it must go through escrow. Paying early outside of escrow can cause problems with the contract and may be seen as a breach by the seller.
What if my down payment gift is from someone who is not a family member?
The lender will still require a gift letter, signed by the giver, stating the money is a gift and not a loan. The giver does not have to be related to you. The lender may also ask for proof that the giver has the funds to give (a bank statement), to make sure the gift is real and not borrowed money that will have to be repaid.
Can I borrow against my 401(k) to pay my down payment?
Some 401(k) plans allow loans against your balance. If you take a loan, your lender will count the monthly repayment as debt when calculating your debt-to-income ratio, which may lower the mortgage amount you may have access to for. Withdrawing from a 401(k) before age 59½ triggers income tax and a 10 percent penalty, so a loan is usually better if your plan allows it. Ask your plan administrator what options are available.