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Tax refund can be used when buying a home

Tax Refund Qualifies as Mortgage Down Payment?

A tax refund is one of several ways to come up with a down payment and closing costs to buy a home. 

Most mortgage programs require that the money you use for your down payment be “sourced and seasoned”.

Sourced funds means you have to show where the money came from, bank account, savings account, retirement fund etc…

Seasoned means that you have to show that you had the money in your account(s) for 60 days, this is why the lender asks for 2 months of bank statements when you were pre-qualified for your home mortgage.

For those home buyers that have to work a little harder to come up with the money for down payment and closing costs, this is for you.

Your down payment and closing costs must come from the proper source.  Most times, a proper source means one of the sources described above.

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3 Sources That Do Not Need to Be Seasoned or Sourced

1.  Tax Refund – A copy of the Treasury Check and a bank receipt showing the deposit is acceptable as sourced and seasoned funds.

2.  Insurance Award – If you are the recipient of an insurance award, this check is considered sourced and seasoned.  Again, be sure to make copy of the check and keep the deposit receipt showing the deposit into your bank account.

3.  Money Paid to you from the sale of personal property that you own.  You will need to produce a receipt for the sale of the item and a deposit receipt showing the deposit into your bank account.

The rule of thumb is always to have a conversation with your loan officer if you do not already have the money for your down payment or closing costs sitting in a bank account collecting dust.

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The cash to close is often the very last step in closing escrow on your new home.  You do not want to find your self at the 11th hour without the proper paperwork or source of funds to close.

NOTE:  A cash advance or short term loan to cover an expected tax refund IS NOT an acceptable source of funds to close.

Through the years, this has always come as a surprise to folks that i’ve worked with…so I thought I would give you this advice early enough for you to start shopping before everyone gets their refund in April and tries to compete for the same home you’re making an offer on!

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About the Author

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

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  • Richard Lozano says:

    I am currently in process for home loan. I was renting the home and well the landlord decided to sell . He offered it to us at way under market value and we didn’t have much time to prepare . We have saved funds throughout the year from payroll, UI, and stimulus funds except we withdrew and saved at home kind of an old way of keeping an eye on my money. My questions is can i use those funds for closing if it reflects on bank statements recurring deposits every other week for the past year. My withdraws show a pattern of savings throughout the year from a legit source. Thank you

    • Scott Schang says:

      Hi Richard, you typically cannot use “cash on hand” as an acceptable source of downpayment funds. This might not be an option due to timing, but you can deposit that money back into your account, and as long as it shows up on 2 bank statements (60 days) it is considered “sourced and seasoned” and you can use it.

      Depending on what kind of loan you’re getting qualified for, you may be the underwriter to sign off on this with a good letter of explanation, but I would be very surprised if it was allowed.

      This is something you want to discuss with your loan officer right away. You do not want this to come up at the last minute at the closing table.

      Another way around this is if the underwriter will not accept your explanation, you can get a gift from an acceptable source to cover your costs.

      Hope this helps?