How to Use Collateral As a Down Payment on a House

Collateral can be used as a down payment on a house.

Lenders typically require a 20 percent down payment on most home loans. The buyer traditionally makes this payment with a cashier's check, but in some cases a lender will accept collateral instead of cash. Collateral can be many assets - stocks, bonds, gold, land and more - that can be liquidated for cash equal to the 20 percent down payment should the borrower default on the loan.


Using Collateral as a Down Payment

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Step 1

Contact a Realtor to start looking at houses and speak to a mortgage lender about securing a loan. Sign a contract on the house of your choice. Review your assets to determine whether they are worth 20 percent of the contracted value of the home.


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Step 2

Get an appraisal on the asset that will be used as collateral. This may not be needed on assets with easily obtained values such as stocks and bonds, in which the market quotes a price every day. On less liquid assets such as land, property or gold, an appraisal will be needed to illustrate the value.


Step 3

Take the written and signed results of the appraisal to the lender. Be sure to have the appraiser's contact phone number in case the lender needs to verify the results. Show the lender that the asset you are pledging as collateral is worth 20 percent of the value of the house. Pledge that asset as collateral and sign the papers agreeing to give up the asset in case of a loan default.


Step 4

Obtain the financing for the house. Close on the house, move in and enjoy!


Do a complete inventory of your assets before deciding which ones to pledge as collateral.

Shop around among different lenders to obtain the most favorable interest rates and the smallest collateral requirements.

Be firm on the price you pay for the house to reduce your collateral requirements.


Be careful about pledging assets as collateral that may drop in value, such as stocks. Should this happen, the lender could require you to post additional collateral. If you cannot, you'll risk foreclosure.

Things You'll Need

  • Lender

  • Contract

  • Appraisal