You do not need a savings account to buy a house, but lenders will require proof that you have money set aside for a down payment and closing costs
A savings account is one way to hold and show that money, but it is not the only way. Lenders care about whether the funds exist and where they came from — not which financial institution holds them. You can keep down payment money in a checking account, money market account, certificate of deposit (CD), brokerage account, or even as cash you deposit shortly before closing. What matters is that you can document the funds and explain their source to satisfy the lender's requirements.
The real barrier to buying a house is not the type of account but the amount of money you need to save. Down payments typically range from 3 to 20 percent of the home price, depending on the loan type. Closing costs add another 2 to 5 percent. On a $300,000 home, that means you might need anywhere from $18,000 to $90,000 before you can close — regardless of where that money sits.
Key Takeaways
- Lenders require proof of funds for your down payment and closing costs, but a savings account is not the only place to hold that money.
- Down payment amounts vary by loan type: FHA loans may require as little as 3.5 percent, conventional loans often require 5 to 20 percent, and VA loans may require zero percent.
- You must be able to document where your down payment money came from, and lenders will ask for bank statements going back 60 days or more.
- Funds held in retirement accounts like a 401(k) or IRA may be withdrawn under certain conditions, but early withdrawal penalties and taxes can reduce the amount you receive.
- If you do not have enough saved, down payment assistance programs in your state or county may help cover part or all of the down payment.
What lenders actually check about your money
When you apply for a mortgage, the lender orders a verification of funds — a formal request sent to your bank asking them to confirm your account balance. The lender typically wants to see statements from the past 60 days, though some ask for longer. They are checking three things: that the money exists, that it is yours, and that it did not arrive suspiciously close to your application date.
That last point matters. If you suddenly deposit a large sum two weeks before closing, the lender will ask where it came from. A gift from a family member is usually acceptable, but you will need a signed letter from the person who gave you the money stating it is a gift and does not need to be repaid. A loan from someone else will be treated as a debt you owe, which affects your debt-to-income ratio and may disqualify you. Inheritance, a bonus from your employer, or a tax refund are all explainable sources.
The account type matters less than the ability to prove the funds are there. A money market account, CD, or even a brokerage account works as long as the lender can verify the balance. Some lenders are stricter about certain account types — for example, they may not count funds in a brokerage account if the market value fluctuates significantly — so ask your lender upfront what they will and will not accept.
Down payment requirements by loan type
FHA loans (backed by the Federal Housing Administration) require a minimum down payment of 3.5 percent of the purchase price. This is the lowest threshold available to most borrowers and is why FHA loans are common for first-time buyers. You still need to show the funds exist, but the amount is smaller than conventional loans.
Conventional loans (not backed by a government agency) typically require 5 to 20 percent down. Some lenders offer 3 percent down conventional loans, but these usually come with higher interest rates or require mortgage insurance. The more you put down, the lower your monthly payment and the less you pay in interest over the life of the loan.
VA loans (for military members, veterans, and some surviving spouses) often require zero percent down. If you are using a VA loan, you may not need to save a down payment at all, though you will still need to cover closing costs or negotiate with the seller to pay them.
USDA loans (for rural properties) also allow zero percent down for borrowers who meet income and property location requirements. Like VA loans, you would still need funds for closing costs.
Closing costs and what they cover
Closing costs are separate from your down payment and typically run 2 to 5 percent of the loan amount. On a $300,000 home with a $60,000 down payment, closing costs might be $4,800 to $12,000. These costs cover the lender's origination fee, appraisal, title search, title insurance, homeowners insurance, property taxes, and the escrow company's fee for handling the transaction.
You can sometimes negotiate with the seller to pay part or all of your closing costs, which reduces the amount you need to have saved. This is called a seller concession. The amount the seller can contribute varies by loan type — FHA loans allow up to 6 percent of the purchase price, while conventional loans typically cap it at 3 percent. If the seller agrees to pay your closing costs, you still need to show the lender that you have the down payment saved.
Some lenders offer no-closing-cost loans, which roll closing costs into your interest rate instead of asking you to pay them upfront. This means you do not need to save as much money before closing, but you will pay more interest over the life of the loan. Whether this is worth it depends on how long you plan to stay in the home.
Using retirement accounts and other sources
If you do not have enough in a regular savings or checking account, you may be able to withdraw from a 401(k) or traditional IRA under certain conditions. The IRS allows first-time homebuyers to withdraw up to $10,000 from a traditional IRA without the 10 percent early withdrawal penalty, though you will still owe income tax on the amount withdrawn. A 401(k) may allow a loan against your balance rather than a withdrawal, which means you repay yourself with interest instead of losing the money.
Withdrawals from a Roth IRA work differently. You can withdraw contributions (the money you put in) at any time without penalty or tax. You can also withdraw earnings if you are a first-time buyer, up to $10,000 lifetime, though earnings are subject to income tax. The advantage of a Roth IRA is that you only pay tax on the earnings portion, not the full withdrawal.
Before withdrawing from retirement accounts, talk to a tax professional or financial advisor. The tax bill can be substantial, and you lose years of compound growth on that money. In many cases, it makes more sense to delay buying until you have saved enough in taxable accounts, or to look for down payment assistance instead.
Down payment assistance programs
If you cannot save enough for a down payment, many states and counties offer down payment assistance programs. These programs may cover part or all of your down payment, though they often come with income limits and other requirements. Some are grants (money you do not repay), while others are forgivable loans (you repay them only if you sell the home within a certain number of years).
The availability and terms of these programs vary widely by location. Your state housing finance agency, local housing authority, or nonprofit organizations like NeighborWorks America can point you toward programs in your area. Some programs are tied to specific loan types — for example, some only work with FHA loans — so you will need to check what you are may be able to access for before applying for a mortgage.
Employer assistance is another option. Some large employers offer down payment assistance as an employee benefit, either as a grant or a low-interest loan. Check with your human resources department to see if your employer has a program.
What to do if you do not have enough saved yet
If you are not ready to buy because you have not saved enough, you have several options. The most straightforward is to continue saving and delay your purchase by six months to a year. Even small monthly contributions add up — saving $500 a month for a year gives you $6,000 toward your down payment.
Another option is to look for a lower-priced home that requires a smaller down payment. If you are looking at $400,000 homes but can only save $15,000, shifting to a $250,000 home makes that $15,000 a 6 percent down payment instead of 3.75 percent, which may be enough to avoid mortgage insurance.
You can also explore whether you may have access to for a loan program with a lower down payment requirement. FHA loans at 3.5 percent down are available to many borrowers who do not may have access to for conventional loans. VA and USDA loans require zero down if you meet the may be able to access criteria. A mortgage broker or loan officer can run your numbers and tell you which programs you might may have access to for.
Frequently Asked Questions
Can I use a gift from family for my down payment?
Yes, but the lender will require a signed letter from the person who gave you the money stating it is a gift and does not need to be repaid. The lender may also ask for proof that the gift came from the giver's own account, so ask the person to provide a bank statement showing the transfer.
What if my down payment money is in a CD that will not mature until after closing?
You can usually withdraw from a CD early, though you will pay an early withdrawal penalty (typically a few months of interest). The lender will want to see proof of the funds, so contact your bank to find out the penalty amount and whether you can withdraw before the maturity date.
Do I need to keep my down payment in a savings account the whole time I am saving?
No. You can move money between accounts as long as you can document where it came from when the lender asks. If you move money between your own accounts, keep statements from both accounts showing the transfer. Avoid moving money between different people's accounts, as this can trigger questions about the source of funds.
Will the lender count money my parents are holding for me?
Only if it is formally documented as a gift. The lender will ask for a gift letter and proof that the money is in your parents' account. Some lenders require the gift to be transferred to your account before closing so they can verify it is yours.
What happens if I do not have enough for closing costs even after my down payment?
Ask the seller to pay your closing costs as part of the negotiation, look for a no-closing-cost loan (which raises your interest rate), or explore down payment assistance programs that may also cover closing costs. Some programs are designed to help with both.