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Use Your Tax Refund as a Down Payment on a Home
One of the biggest roadblocks to homeownership for prospective first time homebuyers is the down payment. Given the cost of rent, utilities, student loan debt, and many other expenses, it is hard to save up thousands of dollars for a down payment. Some first time homebuyers are able to receive a downpayment gift from a family member, but not everyone is so fortunate. How then, can a prospective homebuyer purchase a home? Enter, tax season. The time of year every American loves to hate.
How Can my Tax Refund Help me Purchase a Home?
Whether you’re receiving six-hundred or six-thousand dollars in this year’s refund, it could mean the difference between renewing your lease or becoming a homeowner. If you’re leaning toward the latter, deposit your tax refund in your bank account and consult a loan officer about what to do next. Whatever you do, DON’T spend it, move it, or withdraw it in cash. Below are some examples of what you could do with it:
- Add it to your reserves
- Pay off debts to reduce DTI and increase chances of qualifying
- Pay down credit card balances to raise credit scores
- Pay for loan closing costs
- Put toward your down payment
- Create an emergency home repair fund
Be sure to discuss these options and others with your loan officer before making any major decisions with your refund. Each borrower’s situation is different—sometimes it is better to pay off a debt to qualify, while others would be better off with a larger down payment.
Mortgage Programs with Low to No Down Payment
- VA – no down payment
- USDA – no down payment
- FHA – as little as 3.5% down payment
- Conventional – as little as 3% down payment
Related: Purchase a home with zero down payment
The National Association of Realtors reported a median sales price of $232,200 in 2016. The required down payment on this home would be $8,127 with an FHA loan, but zero with a VA or USDA loan. If you choose to pursue conventional financing, you’ll need $6,966 for 3% down, $11,610 for 5% down, $23,220 for 10% down, or $46,440 for 20%.
What if my refund isn’t enough?
Given the increases in home values and interest rates in recent years, a tax refund may no be enough to rely solely on for a down payment on a home. If this sounds like your situation, do not give up! Speak to one of our loan officers, who will gladly help you create a strategic plan for getting pre-approved and purchasing when the time comes.
Get More Information
To apply for a Mortgage or Refinance call Riverbank Finance today at 1-800-555-2098.