Homebuyers often ask us whether they can put their tax refund toward their home purchase, and the answer is YES!
Keep reading to see some ways that your refund can help with your home purchase, plus why it’s so important to file your taxes each year.
A tax refund is, essentially, the money you overpaid to the government. It’s your money and to a mortgage lender, it’s basically the same as having cash in your savings account.
One common way to use a tax refund is to help with the down payment and closing costs on your new home.
A second way is to pay down your outstanding debts, like credit cards or car loans, before you apply for a mortgage. Having less debt can improve your chances of qualifying for a home loan because it can help raise your credit score. A higher credit score may mean a lower interest rate on your loan.
If you haven’t filed and paid your taxes in recent years, you won’t be able to qualify for a mortgage. The exception is people who are legally not required to file, like those on Social Security Disability. However, the vast majority of people are required to file.
If you haven’t filed your taxes this year but can verify that you’ve filed for an extension, you still may be eligible for a mortgage. You will need to provide the most recent returns that you did file when you apply for your home loan.
Well, if your circumstances change and you’re struggling to pay your mortgage, your lender wants to be able to collect on your debt to them. However, your tax debt to the IRS has precedent over your mortgage. That means that your lender may not get repaid if you file bankruptcy and default on your loan.
Lending to someone with tax liens is a risk that mortgage lenders just can’t afford.
If you’ve filed your return but still owe the IRS back taxes, you may still be able to qualify for a mortgage. You’ll need to show that you’re on a payment plan and have been making your payments on time and in full.
If you own a business, there are some unique tax considerations to keep in mind if you want to apply for a mortgage. For example, it may be beneficial for your business to take the write-offs you’re eligible for, but that reduces your personal income. Having a low income can affect your mortgage eligibility.
We have an entire article dedicated to preparing business owners for homeownership. Check it out here.
If you still have questions about your tax refund or how your filing status can affect your home loan eligibility, get in touch. We’re happy to answer any questions and get you set up for a successful buying journey.