How to use your tax refund to buy a house.

The housing market today can feel very competitive, especially for first-time homebuyers. But taking a moment to understand your budget can help you make informed decisions with confidence.

Can you use your tax refund to buy a house?

Yes. You can use your tax refund to help buy a house by putting it toward a down payment, closing costs, or paying down debt to improve your loan options.

While a tax refund likely won’t cover all the costs that come with buying a home, it can help you build momentum while you work toward this goal. Whether you’re just starting to save or already starting to look for a home, here’s how to use your tax refund to take a step toward homeownership.

How much do you need for a down payment?

A down payment is often referenced as a percentage of the total purchase price of a home. For example, if you’re buying a home for $400,000 and you want to make a down payment of 20%, that means you intend to pay $80,000 when you close on the home. A higher down payment gives you more equity in your home, could help you lower your monthly loan payment, or could help you avoid private mortgage insurance (PMI).

But it’s a common misconception that you need enough cash for a 20% down payment to buy a home. Our partners at Mortgage Center offer several home loan options that require a lower down payment, like:

• Conventional loans: Often require 5% to 20% down
• FHA loans: Require down payments as low as 3%
• VA and USDA loans: May require no down payment for eligible buyers
  

If you need help or have questions, contact Mortgage Center. A team member will be there to support you during every step of the homebuying process.

What's the best strategy to save your tax refund for a down payment?

Your tax refund can give your savings a boost and help you work toward your down payment goal. Here’s how:

Use your refund to start your savings.

Start saving toward your down payment by setting your tax refund aside in a savings account that’s separate from your regular savings. Or, if you have a few months before you’re planning to look for a home, consider opening a certificate of deposit account with one of our CD specials. This savings option could help you save faster with a higher interest rate.

Add your refund to your existing savings.

If you’re already saving, consider opening a high-yield savings account, like an Aspire Savings. This account allows you to make contributions and access your cash when you need it and rewards you with a great rate on the first $5,000 in the account.

Make the most of extra funds in your budget or continue to grow your savings by:

• Automating monthly transfers to a dedicated savings account
• Cutting other expenses to save them toward your goal
• Using additional income, like bonuses or side work, to add to your savings
  

Can you use a tax refund for closing costs and other expenses?

A down payment is only one expense to consider when buying a home. You’ll also need to pay closing costs, which can include inspections, appraisals, and legal fees. Sometimes these costs can be rolled into your mortgage. But using your tax refund to pay for upfront costs can help lower your total loan amount. And this could reduce your monthly mortgage payment.

What steps should you take when you're ready to buy a home?

It’s easier to conquer a goal when you break down the steps to get there. And have an idea of what to expect along the way.

1. Set your tax refund aside in a dedicated savings account.
2. Decide on your priorities: Is it most important to have a large down payment, reduce your debt, or cover closing costs?
3. Estimate your budget using a mortgage calculator to understand how much of a monthly loan payment you can afford.
4. Explore home loan options that could fit your situation.
5. Start the pre-approval process by contacting Mortgage Center and dive deeper into the steps to finance your home.

With the confidence and knowledge to move forward, you can make your dreams of homeownership come true.

FAQs about using your tax refund to buy a home.

Can a small tax refund really make a difference?

Yes. Even a small tax refund can help you start saving, reduce debt, or cover part of your upfront costs.

Should I use my refund for a down payment or something else?

It depends on your situation. Saving your tax refund for a down payment or closing costs is a great idea to help you prepare for those expenses. But if you don’t have any savings, it might be better to focus on building your savings first. Or, if debt is impacting your budget, paying it down could improve your credit score and expand your loan options. If you’re not sure how to reduce your debt, explore our guide on how to make a plan and start paying off your debt.

What if I don’t have 20% saved for a down payment?

Many buyers don’t have 20% saved for a down payment on a home. There are home loan options available with lower down payment requirements, especially for first-time homebuyers. If you’re not sure which option would work for you, contact Mortgage Center (our home loan partners) and someone will reach out to help you.

How do interest rates impact my monthly payment?

Small changes in interest rates can significantly change your monthly mortgage payment. Check out current rates from Mortgage Center and then use a mortgage calculator to understand how these rates affect your budget.

How do I figure out my budget to buy a home?

Using an income-based mortgage calculator can help you figure out a comfortable purchase price for a home. Or, check out our article on 4 ideas to figure out your budget to buy a home.

Take the next step toward homeownership.

Your tax refund is just one piece of your financial wellbeing. With the right plan and consistent progress toward your goal, you have the power to confidently move closer toward your dream of owning a home. And with our partners at Mortgage Center, we’re excited to support you during every step of this journey.

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