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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.

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

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.

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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.

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.

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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!

About Your Expert

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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