Using Personal Loans as a Down Payment for a Mortgage

Mortgage loans are usually not extended without a mortgage down payment between 10 and 20%. FHA loan programs offer options for down payments as low as 3.5%, but this can still mean tens of thousands of dollars on an average home loan. Many young people do not have the savings to provide a down payment and closing costs of this size even if they can afford a loan. A personal loan can provide cash for the down payment.

To pursue this route, a borrower needs to understand there will be two separate loans. The first for the mortgage will typically be a fixed interest rate and monthly payments based on a 15 to 30 year term. This loan will state the required down payment. The second loan will be a personal loan in the amount of the down payment that will be made immediately available in cash. The interest rate on this loan will be much higher, and the loan will mature much faster, usually in less than 3 years. 

A home buyer needs to determine whether or not it is possible to make payments to both loans within the first few years of home ownership. It is a risky and expensive maneuver to take a personal loan out for a down payment, but it can pay off if the borrower repays the loan on time.