Tax Refund Used as a Down Payment to Buy a Home

Tax Refunds can be used as a down paymentUse tax refund as down payment?on a house on any type of home loan

During tax season, many renters use their tax refund as a down payment to purchase a home as a first time buyer.

Down payment is one of the biggest obstacles for prospective first time buyers to buy a home.  So this time of year is an important one because so many people receive sizable tax refunds ranging from $2000 – $8000 or even more.  This amount of money can often cover the entire down payment for most homes first time buyers would be interested in.

If I Use a No Money Down Home Loan to Buy, Can I Spend My Tax Refund?

The quick answer is NO!  At least that would be the answer for right now.  Even if a buyer is using a 100% financing mortgage product like USDA or VA, there are several reasons NOT to spend that tax refund such as…

  1. Use the tax refund to pay closing costsUse a tax refund as a down payment to purchase a home
  2. Pay off debts to help qualify (talk to us before paying off a debt or collection!)
  3. Keep the refund in the bank as reserves which will help buyers get approved easier
  4. Pay down credit card balances to raise credit scores
  5. Have money for furniture, curtains, or an emergency fund as a homeowner

Can I Apply Now for a Mortgage Even Though I Do Not Have my Refund Yet?

It is perfectly fine to apply for a mortgage loan when you don’t have your refund yet.  At application we can just assume the amount that you will be receiving during the process of the loan as long as we can prove receipt of the funds in your account prior to the final underwriting approval.

Warning!  Don’t Do This With Your Tax Refund!

Too often we see borrowers will receive a tax refund and then just cash the check or withdraw the fundsHow to use your tax refund to purchase a homeimmediately from their account.  Once it is converted to cash, it is very hard to use those funds for the purchase because if it is deposited again, lenders cannot confirm the source of the money.  It is best to deposit the refund and keep it there until your mortgage professional advises how it should be used.

So the important thing to do is talk with one of our professionals before spending or withdrawing the tax refund.  Each borrower’s scenario is different so sometimes it is more important to pay off a debt to qualify where others it is better to have a down payment.  Believe it or not, a USDA or VA loan which doesn’t require a down payment can have as low of a monthly payment as other mortgage loans that do require a down payment.  So let’s make sure that you know all of your options before spending your tax refund, if you have to even spend it at all!

Mortgage Products Available for First Time Buyers Offering Low to No Down Payment

  1. USDA – No down payment required
  2. VA – No down payment required
  3. FHA – 3.5% down paymentuse a tax refund to get approved for a home purchase
  4. Down Payment Assistance – Can be 3 – 5% of the first mortgage loan amount to provide down payment or pay closing costs on the purchase
  5. Conventional – 3% or more down payment
  6. AND first time buyers can even get up to an additional $2000 tax credit each year!

So when someone has a tax refund on the way, mortgage rates are so low, the job market is stable, and there are still affordable homes, why not buy a home now?  Contact Team Move to Start

 

Posted by Dietchi Thomas on

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