How to Use Your Tax Refund to Buy a Home

For some, tax season is a dreaded time of the year, but if you’re one of the lucky ones receiving a sizable tax return, you may feel as excited about tax time as you do about getting an end-of-the-year bonus from your boss. Whether you’re receiving a couple hundred or several thousand dollars, it’s a good opportunity to consider using your tax refund toward buying a home. It may sound incredible, but it is possible. Following tax tips for home buying success isn’t as far-fetched as it may seem. It does require some planning, but — especially if you’re a first-time homebuyer — you can turn a small windfall into a large purchase. There are a number of programs that offer incentives for you to purchase your first home.

Down Payment Basics

For certain loan products, such as an FHA loan, you only need 3.5 percent of the loan as a down payment. Other loans don’t require any down payment. You can finance the entire loan if you qualify for a:

VA loan
USDA loan

In general, the more you’re able to put down on your home, the less you have to borrow. So here are valuable tax tips for home buying: if you were planning on using your tax refund to make a big purchase, use it to help you make the biggest purchase of your life: a home. What better use of that money is there?

Comparing Tax Refunds and Down Payments

In 2015, the average refund for personal tax returns was $3,120. Meanwhile, the average deposit needed for an FHA loan down payment was $6,615. If you were already saving up for a down payment, you can get nearly half of what you need just by following these tax tips for home buying.

Some financial planners recommend that you view taxes as a forced saving plan. But while it feels good to get this money back from the government, keep in mind that they made interest on it. So, use it for something special, like the thousands of Americans who choose to spend their tax returns on a down payment for a home.