Using your tax return as down payment for your new house
Mar 31, 2023
If you are thinking of buying a new house, you may be wondering how to finance your purchase. One option that many people overlook is using their tax return as a down payment. This can be a smart way to reduce your mortgage amount and save on interest payments. Here are some tips on how to use your tax return as a down payment for your new house.
1. Estimate how much you will get back from your taxes.
You can use online calculators or consult a tax professional to get an idea of how much you will receive from your tax return. This will help you plan your budget and determine how much you can afford to spend on a house.
2. Save your tax return in a separate account.
Once you receive your tax return, resist the temptation to spend it on other things. Instead, save it in a separate account that you can use for your down payment. This will help you avoid using it for other expenses and keep track of how much you have saved.
3. Shop around for the best mortgage deal.
When you have your tax return ready to use as a down payment, you can start looking for the best mortgage deal for your situation. Compare different lenders, interest rates, fees, and terms to find the one that suits your needs and budget.
4. Apply for a mortgage pre-approval.
A mortgage pre-approval is a letter from a lender that states how much they are willing to lend you based on your income, credit score, and other factors. Having a pre-approval can give you an edge when negotiating with sellers and show them that you are a serious buyer.
5. Use your tax return as a down payment.
When you find the house that you want to buy, you can use your tax return as a down payment to reduce the amount of money that you need to borrow. Depending on the type of mortgage that you choose, you may need to pay a certain percentage of the purchase price as a down payment. For example, if you buy a house for $300,000 and you have a 20% down payment requirement, you will need to pay $60,000 upfront. If you have saved $10,000 from your tax return, you can use it as part of your down payment and only need to borrow $250,000.
Using your tax return as a down payment for your new house can be a smart way to achieve your homeownership goals. However, before you do so, make sure that you have enough money left over for other expenses such as closing costs, moving costs, insurance, taxes, and maintenance. Also, make sure that you are comfortable with the monthly mortgage payments that you will have to make.
If you need more advice on how to use your tax return as a down payment for your new house, contact one of our experienced mortgage advisors for a free consultation.