Wondering if you can use your tax refund on a down payment for a house? The answer is yes: Homebuyers do it every year. In fact, many first-time homebuyers strategically use their tax returns to cover down payment costs, closing costs, or both. Whether you’re receiving a few thousand dollars or a larger return, that money can be applied directly toward your home purchase.
Tax returns offer extra cash that can be put toward big-picture goals. You might be hoping to buy a house this year or sell your home and trade up. The average taxpayer can expect to get back a tax refund of around $3,000. This may be enough to cover some or all of your down payment.
You don’t need a 20% down payment for a house
Countless homebuyers delay buying a house because of this common misconception: the outdated “rule” that says you need 20% down (or tens of thousands of dollars) to qualify. Most first-time homebuyers put down far less. Minimum down payment requirements range from 0-3.5%, depending on the loan program.
Here’s a breakdown:
- Conventional loan: As low as 3% down for qualified first-time buyers with strong credit (typically 620+)
- FHA loan: Just 3.5% down with more flexible credit requirements (scores as low as 580)
- VA loan: 0% down for active-duty service members, veterans, and eligible surviving spouses—plus no PMI (Private Mortgage Insurance)
- USDA loan: 0% down for homes in eligible rural and suburban areas (income limits apply)
- Down payment assistance: State/local grants or low-interest loans that can be put toward a down payment or closing costs
Do you qualify for low or no down payment loan programs? Contact your local Cornerstone loan officer to find out.
How to use your tax refund to your advantage
Your refund can work for you in a few different ways:
1. Cover your down payment
This is the most common move. Depending on the loan type, you could put down as little as 0 to 3.5%. That tax refund? It might get you most—or all—of the way there.
2. Pay for closing costs
Closing costs typically run between 2 to 5% of your home’s purchase price. If you’ve got your down payment handled but are short on closing funds, your refund can bridge that gap.
3. Build your cash reserves
Some loan programs require you to have a few months of mortgage payments in reserve—proof that you can handle your housing payment even if unexpected expenses arise. Your tax refund can help you meet that requirement and provide financial cushion after you move in.
4. Fund your inspection and appraisal
These upfront costs (typically $300 to $500 for an inspection and $200 to $600 for an appraisal) come due before closing. Using your refund for these expenses means your savings can stay intact for your down payment.
5. Cover moving costs and immediate home needs
Moving expenses, utility deposits, basic furniture, and those first-week essentials add up quickly. Allocating part of your refund to these costs means you won’t deplete your emergency fund right after closing.
6. Strengthen your offer
In markets with multiple offers, having extra cash on hand gives you flexibility. Whether it’s covering an appraisal gap, offering a larger earnest money deposit, or waiving certain contingencies, that refund can make your offer more attractive to sellers.
The beauty of using your tax refund strategically is that you don’t have to choose just one option. Many buyers split their refund across multiple needs—putting $2,000 toward their down payment, $500 toward the inspection and appraisal, and keeping $500 as a buffer for moving costs. The key is having a clear plan before the money hits your account.
It’s also worth noting that how you allocate your refund can impact your loan approval. For example, if you need more cash reserves, using your refund to boost your savings could be the deciding factor in getting approved. If you’re comparing loan programs—say, choosing between FHA and conventional—having extra funds available might open up the conventional option with its lower long-term costs.
These strategic decisions matter, and your loan officer can help you decide what makes sense for your situation.
Shorten your down payment savings time
A small windfall, like a tax return, could cut months off the time it takes to save for a down payment. With help from a low or no down payment loan program, you might need even less than you think. Prequalify to find out.
For educational purposes only. Sources deemed reliable but not guaranteed.