Using Your Tax Return as a Down Payment

Using Your Tax Return as a Down Payment

It’s that time of year when many of us are anxiously awaiting a tax refund from the IRS. If you are in the market for a new home, good news! Your tax refund could offer the perfect opportunity to put the money toward a down payment on the house of your dreams. Let’s talk about how this works.

The truth is, saving up for a down payment can be one of the biggest barriers to owning your home. Not only that, but did you know that most mortgage lenders require that the money you use for your down payment be “sourced and seasoned”?

What does “sourced and seasoned” mean?

Sourced means you have to identify where the money came from, whether that is your bank account, regular income stream, retirement fund, and so on.

Seasoned means that the money has been in your account for a certain amount of time, usually 60-90 days. 

Mortgage lenders request bank statements to see if the money being used for the down payment is coming from an allowable source. Basically, the lender wants to ensure that you’ve acquired the money by being a responsible consumer, and not through last-minute tricks.

Does a tax refund qualify as Sourced and Seasoned?

The good news is, YES, a tax refund qualifies as sourced and seasoned! You can show a copy of the Treasury Check and a bank statement showing the deposit to meet the requirements as sourced and seasoned funds.

What else should I consider?

Before you make the final decision about what to do with your tax refund, make sure you have at least a minimal emergency fund to cover your expenses for a few months just in case something unanticipated comes up. Make sure your financial bases are covered before you move forward with this plan.

If you already have an emergency fund in place, then putting your tax return money towards your down payment and closing costs can be a great way to put you on your way toward homeownership!

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