Putting Your Tax Refund to Work Toward a Home

For many households, a tax refund is the biggest single deposit of the year. If you are planning to buy a home, that money can move you meaningfully closer to your goal. The key is deciding where it will do the most good for your situation.

Option 1: Grow Your Down Payment

Your down payment is your first stake in the home. Adding your refund to it can:

• Reduce the amount you need to borrow.
• Lower your monthly payment.
• Reduce or help you avoid mortgage insurance, depending on the loan.
• Potentially improve the terms you qualify for.

You do not need 20% down to buy. Eligible buyers may put down as little as 3% on a conventional loan or 3.5% on an FHA loan with a credit score of 580 or higher. Even so, every extra dollar helps. Our low down payment options page explains the programs available.

Option 2: Cover Closing Costs

Closing costs are separate from your down payment and include lender fees, title charges, appraisal costs and prepaid taxes and insurance. They often add up to a few percent of the purchase price, and they catch some buyers by surprise. Setting your refund aside for these expenses can keep your savings intact and make closing day much less stressful.

Option 3: Pay Down Debt

Sometimes the best move for your mortgage is not saving more, but owing less. Paying down a credit card balance or paying off a small loan can:

1. Lower your debt-to-income ratio, which may increase what you qualify for.
2. Reduce your credit utilization, which may help your credit score.
3. Free up room in your monthly budget for a house payment.

Which option is best depends on your numbers. A loan officer can tell you whether a bigger down payment or a smaller debt load would improve your application more.

Option 4: Build Your Reserves

If your down payment and closing costs are already covered, consider keeping your refund as a cash reserve. Some lenders and programs look favorably on savings left after closing, and a cushion protects you if the water heater fails in your first month as an owner.

Make the Most of It

• Move it right away. Transfer your refund to a dedicated savings account as soon as it arrives, before it gets absorbed into everyday spending.
• Keep records. Lenders review bank statements, so a clear trail showing a refund deposit is easy to document.
• Get pre-approved. Knowing your price range helps you decide where your refund should go.
• Budget beyond closing. Keep some cash in reserve for moving and early repairs.

Turn Your Refund Into Progress

A refund is a great opportunity to take a real step toward homeownership. If you would like help deciding how to use yours, reach out to FLO Mortgage. A loan officer can run the numbers and show you which choice moves you closest to your goal.

This article is for general education and is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines and program availability. FLO Mortgage, Company NMLS #1835856. Equal Housing Opportunity.