Anything That Can Be Appraised Can Be Used as Down Payment Funds.
Your baseball card collection? Your Rolex watch? Your car? Anything that can be professionally appraised can be a legitimate source of funds to close a real estate deal. What is a "professional" appraisal? If you can get an insurance policy on it, it's probably appraisable.
I've got a baseball card collection. I've got a couple of Mickey Mantle rookie cards, a Jackie Robinson card, a Frank Robinson rookie—okay, don't get me started. But these are all appraisable assets. No, I won't go to closing with my Roberto Clemente Topps in hand, but if I wanted to use those cards as funds to buy real estate, then I could.
Because baseball cards can be professionally appraised, they can be a source of funds. "Hey, Dave, how'd you get that nice new house?" "Two Mickey Mantle Bowman rookies!"
I would have to show ownership of those cards by taking them to a professional appraiser, who would verify that I've got them and provide a written estimate of their worth. I would then have to sell those cards, either to an individual or to a card dealer, and verify the transaction.
Nice watch? Is it appraisable? Sell it. Car? Sell it and document it. If you can get an appraisal on it, it can be used.
There Are Several Unacceptable Sources of Down Payment Funds
Cash on hand
Borrowed funds that are unsecured Sweat equity
Almost anything that can't be proven to be yours
Cash on hand needs to have some history. It needs to have a source. Lenders aren't trying to make you out to be a drug dealer or a bookie; they're trying to ascertain that there aren't other loans against the property that they may not know about. If you've got a few thousand dollars lying around, be prepared to explain how you got it.
Often, a simple response of "I don't trust banks, so I keep my money at home in a safe" is sufficient. In the lending industry, such funds are called "mattress money"; the moniker works because it's assumed that the borrower stashes a 20-dollar bill under the mattress every Friday.
Lenders understand that there are certain cultural differences when it comes to mattress money. The lender won't let you come to the closing table with a bunch of rolled-up ten-dollar bills, however; it will ask that you put it in a deposit account or obtain a cashier's check.
If you use the "I don't trust banks" reason to have a wad of cash in your hand, but at the same time you have an ATM card and a checking account, you can bet that your mattress money explanation will be shot full of holes.
You can't borrow money from credit cards or other nonsecured sources. You can borrow against other real estate, but you just can't put your down payment on a credit card.
Sweat equity is a loose term that means that all the work you personally did on a property would have cost so many thousands of dollars if the lender had gone out and hired someone to do it. If you wanted to buy a home that needed a new roof and a new bathroom, and you volunteered to do all the work yourself without the lender's having to pay you, that would be sweat equity.
Sweat equity is too difficult to assign value to, much less keep track of the work you've done. Don't count on sweat equity as a source of funds to close.
The final caveat on unacceptable sources of funds: Just about anything that you can't prove is yours, the lender won't count. Sound unfair? Maybe, but down payments are a risk element that lenders use to determine loan approval, and hey, since it's their money, you have to play by their rules.