Should You Use Your Tax Refund for a Down Payment?
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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The average refund amount for the week ending March 14 was $3,271, according to IRS data. For many Americans, that’s a very significant chunk of change — and it shouldn’t be squandered. While there are a number of effective ways you can use this money — including paying down debt and stashing it in an emergency fund — one you may not have thought of is using it for a down payment on a home.
Here’s why you might want to consider using your tax refund for a down payment.
Pros of Using a Tax Refund Toward a Down Payment for a House
Having an extra $3,000 can come in handy if you are a prospective homebuyer.
“One of the biggest barriers to homeownership, especially for first-time buyers, is the upfront cash needed for down payments and closing costs,” said Brandon Kelly, lending manager at Chase Home Lending.
“A tax refund may offer additional funds to put towards a down payment, offering prospective homebuyers increased purchasing power and enabling them to qualify for a more favorable interest rate, to lower monthly payments or for a smoother preapproval process.”
Why You Might Not Want To Use Your Refund for a Down Payment
Using your tax refund for a down payment may not be the right decision for you based on your own financial circumstances.
“A tax refund could be used for other important financial needs, like building up an emergency savings, paying off debt or making necessary home repairs,” Kelly said. “If you use it all for a down payment, you may be left with little cushion for other financial goals or emergencies that arise.”
Best Ways To Maximize Your Tax Refund for Homebuying
If you do decide to use a refund toward a down payment, be strategic about how you do so. This first step is figuring out exactly how much home you can afford.
“Before starting your home search, prospective buyers should work with a mortgage professional to determine their budget, how much home they can afford/put toward a down payment, what loan options are best, and get preapproved for a mortgage,” Kelly said.
“A home lending professional can also help them determine what resources and options are available to help boost their purchasing power.”
Taking advantage of the right loan options and assistance programs can help your refund go further.
“In combination with using a tax refund towards a down payment, buyers can also consider loan options that require as low at 3% down,” Kelly said. “Assistance programs can also help eligible homebuyers offset the costs of down payments and closing costs, offering increased purchasing power and improved loan qualifications.”
Tools like Chase’s Homebuyer Assistance Finder can help prospective buyers research what programs are available and which they may be eligible to take advantage of.
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