Can You Use a Line of Credit for a Down Payment?

Sometimes, but it’s not always a good idea—and not all lenders allow it.

In Canada, many lenders prefer your down payment to come from your own savings (cash, TFSA, RRSP via HBP, gifts, etc.). Some will allow you to borrow part or all of the down payment from a line of credit, but they’ll:

• Treat the line of credit as extra debt, and

• Recalculate whether you still qualify for the mortgage with those payments included

Even if it’s allowed, using a line of credit for a down payment makes your overall debt load higher and your monthly budget tighter, so it needs to be done carefully.

KOHO Line of Credit

If you’re going to use borrowed funds, it’s usually safer as a small top-up, not the entire down payment.

With the KOHO Line of Credit, you can:

• Apply online for about $1,000–$15,000 in available credit

• Get interest rates as low as 19.9%

• Only pay interest on what you actually use, not on your full limit

• Avoid extra charges—no late, annual, or origination fees, just the interest on what you borrow

• Apply without a hard credit hit; checking if you qualify won’t impact your credit score

How Lenders View Borrowed Down Payments

From the lender’s perspective, a borrowed down payment:

• Increases your monthly debt obligations (you now have a mortgage and line of credit to pay)

• Can lower the mortgage amount you qualify for because of higher debt ratios

• Might be treated more cautiously than money from savings or gifts

Some lenders and mortgage insurers allow “non-traditional” down payment sources (like borrowed funds) under certain conditions; others are stricter.

That’s why it’s important to check with your mortgage broker or lender before assuming a borrowed down payment will fly.

Pros of Using a Line of Credit for a Down Payment

If allowed and used carefully, a line of credit can:

• Help you top up your down payment if you’re just shy of your target

• Cover closing costs (legal fees, land transfer tax, inspections, moving) while keeping more of your cash in the down payment

• Let you act on a home opportunity a bit sooner, instead of waiting to save the last few thousand dollars

But these advantages only matter if your overall budget still works after the mortgage and LOC payments are included.

Cons and Risks

The downsides are significant:

• Higher monthly payments overall (mortgage + LOC payment)

• More pressure on your cash flow, especially if rates rise or expenses jump

• You start homeownership with more debt and less buffer, which can be stressful

• There’s a risk of becoming house-poor—homeowner on paper, but with very little breathing room

If you’re already stretching to afford the home, adding a line of credit on top can be the thing that tips your budget from “tight” to “unmanageable.”

A Safer Way to Use a Line of Credit

If you do use a line of credit in your home-buying plan, consider:

• Using it as a small top-up rather than the whole down payment

• Having a clear repayment plan to pay it down quickly after closing

• Keeping an emergency fund separate, so you’re not relying on the LOC for every surprise bill

• Making sure your lender is fully aware of the source of funds (don’t try to hide it—this can cause bigger problems)

Often, the healthiest strategy is:

1. Use savings + tax-advantaged accounts (TFSA, RRSP via HBP) for most of the down payment.

2. If needed, use a modest line of credit for closing costs or a small shortfall.

3. Focus on paying down that line of credit quickly once you’re in the home.