Use Your Tax Return as a Down Payment

While most people dread tax time, if you are getting a tax refund, this time of year can seem almost as rewarding as end-of-the-year bonus season.

Whether you are receiving a refund of a few hundred dollars or several thousand dollars, if you’re contemplating buying your first home, you may want to deposit your refund into an account dedicated to your down payment fund.

Coming up with a down payment to buy a home is one of the biggest obstacles that renters and first-time buyers stumble on when they want to become homeowners. That’s why during tax season, many first-time homebuyers turn to their tax refunds as a down payment option.

With that said, there may be no better time to qualify for a new home!  Please do contact me at your earliest convenience and we can get started.

Quite often a tax refund may actually cover the whole down payment on a home purchase.  Furthermore, these tax refunds may be used as assets or down payment right away.

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.  As long as we can prove receipt of the funds in your account prior to the final underwriting approval.

Pay closing costs or earnest funds

Many first time home buyers underestimate the cost of buying a home. In addition to a down payment and enough money to rent a moving truck, you may need to pay closing costs or pay an earnest deposit (money paid to the seller as evidence of your intention to purchase the property).

Buy down your interest rate

Paying a small amount of money up front can save you tens of thousands of dollars in interest over the life of the loan. One point – or one percent of your loan – generally buys you a discount of one eighth (.125) or up to one quarter (.25) of a percent. Meaning, you could move your monthly payment and interest rate downward (from say, 4.5% to 4.25%) by bringing in some cash.

How to Handle Your Tax Refund

If you plan to use your tax refund for a down payment, you have to follow very strict procedures. If you miss a step, a lender might not be able to use the funds. They have to have a paper trail.

In order to have a trail, you have to deposit the refund in the account you plan to use for your down payment. If this is your checking account, then deposit the entire check in this account. You should not deposit a part of the check and take cash the rest. You should also not deposit it and then withdraw it as cash. Essentially, deposit it and leave it alone.