Can I Use my Tax Return for a Down Payment?
In my ongoing effort to help my clients understand the taxable implications of a mortgage during tax season, today I will talk about how a tax return can and cannot be used to help with a home purchase. I run into many clients who qualify for a mortgage; they have the income to sustain a mortgage, the credit to qualify, and the desire to be homeowners, but the initial down payment is forever prohibitive. This is especially common for first time homebuyers who do not have another house to sell and get equity out of for the down payment.
And for clients like these, a large cash infusion is all that is missing to buy the house of their dreams. Some wait on an inheritance or family gift, others save for years and years, and still others hope for a large bonus at work. But another, increasingly popular place to get a down payment, is a tax return. If you are close to the necessary costs for a down payment and closing costs, this can be just the infusion you need. Or if you have no savings, depending upon the mortgage size and type, this could cover everything.
Take a $250,000 mortgage, for instance. With a 3% down payment through Fannie Mae or Freddie Mac, that requires $7,500 down. If you get the seller to cover your closing costs, and you have a tax return of $7,500 or more, you can use it to fully cover your down payment and buy a house. And because a tax return is easy to source, it can be used as a down payment from the moment the check clears the bank (or direct deposit is deposited into the account).
So if you are in the market for a house and think a tax return could help you to cover the down payment, contact me and I will gladly help walk you through the process. If you have anything to add about using a tax return for a down payment, please leave a comment.