During tax season, refunds help so many become homeowners!
Down payment is one of the biggest obstacles for prospective first time buyers to purchase a home. But during tax season, many tax payers have more funds than any other time of year. So there is no better time to qualify for a new home! Quite often a tax refund may actually cover the whole down payment on a home purchase. Additionally there are several programs that do not even require a down payment. Even though down payment may not be required, assets help the strength of the borrower. Furthermore, tax refunds may be used as assets or down payment right away.
If I Use a No Money Down Home Loan to Buy, Can I Spend My Tax Refund?
The quick answer is NO! At least that would be the answer for right now. Even if a buyer is using a 100% financing mortgage product like USDA or VA. There are several reasons NOT to spend that tax refund. Here are several reasons.
- Use the tax refund to pay closing costs
- Pay off debts to help qualify (talk to us before paying off a debt or collection!)
- Keep the refund in the bank as reserves. More reserves equals better chance of approval
- Pay down credit card balances to raise credit scores
- Have money for furniture, curtains, or an emergency fund as a homeowner
Can I Apply Now for a Mortgage Even Though I Do Not Have my Refund Yet?
It is perfectly fine to apply for a mortgage loan when you don’t have your refund yet. At application we can just assume the amount that you will be receiving. As long as we can prove receipt of the funds in your account prior to the final underwriting approval.
Warning! Don’t Do This With Your Tax Refund!
Too often we see borrowers receive a tax refund and then just cash the check. Others will immediately withdraw the funds from their account. Converting the refund into cash causes problems on a purchase. Also if the cash is deposited later, proving the source is very difficult. So it is best to deposit the refund and keep it there. At least keep the funds in the bank account while waiting for correct advice from a mortgage professional.
Most importantly, talk with one of our professionals before spending or withdrawing the tax refund. Each borrower’s scenario is different. Sometimes it is more important to pay off a debt to qualify. Conversely, others may benefit by having a down payment.
No down payment loans such as USDA or VA are great options. Believe it or not, these loan payments may even be lower per month than loans which require a down payment. So we will review these potential options as well for you.
In summary, let’s make sure you know all of your options before spending your tax refund. You many not even have to spend it at all!
Mortgage Products Available for First Time Buyers Offering Low to No Down Payment
- USDA – No down payment required
- VA – Usually no down payment required. Depends on entitlement amount, purchase price, and county limit
- FHA – 3.5% down payment
- Down Payment Assistance. Use to offset down payment or closing costs
- Conventional – 3% or more down payment
- AND first time buyers can even get up to an additional $2000 tax credit each year!
With a tax refund, is there a better time to buy? This is a great opportunity – low rates, stable job market, and affordable homes. Why not buy a home now?
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.