Turn your tax refund into the key to your dream home! If you are planning to buy a home in 2026, your tax refund could be one of the most beneficial paychecks of the year. While a few thousand dollars may not cover your entire down payment, there are many ways to use your refund to your advantage this tax season.
Give a Boost to Your Down Payment
As mentioned above, your tax refund might not cover your entire down payment, but it certainly can help bridge the gap if you have been waiting to hit your savings goal. Even if you have not reached your target yet, there are still ways to get you into a home!
There are many grants and Down Payment Assistance (DPA) programs designed to help buyers cover down payment and closing costs. Your lender can help review your financial situation to determine which grants and programs you qualify for. Combining these programs with your tax refund can significantly reduce the amount of cash you need to bring to the closing table.
Lower Your Debt to Increase Your Buying Power
One of the key metrics mortgage lenders review is your debt-to-income (DTI) ratio. If your monthly debt payments are too high compared to your income, you may have a difficult time for qualifying for certain loan programs.
Using your refund to pay off a credit card or a small personal loan can lower your DTI. Doing this often improves your credit score and can even help you qualify for a lower interest rate or higher loan amount.
Use Funds Towards Your Earnest Money Deposit (EMD)
Once you are under contract for home, you will likely provide an Earnest Money Deposit. This is a sum of money (usually between 1% and 5% of the home’s purchase price) that proves to the seller you are serious about buying the home.
The money is held in escrow and goes towards your closing costs when you finalize the sale. Please note that if you choose to cancel the sale without a valid legal reason, you may lose your EMD. Your refund is the perfect source for this upfront cost.
Cover the Cost of Professional Inspections
You will likely want to get a home inspection while you are under contract. An inspection tells you if any improvements are necessary and helps you understand the long-term health of the property. Depending on the home, you may want to pay for specialized tests such as:
- Sewer Scopes
- Radon Testing
- Mold Assessments
- And more.
These costs can quickly add up. Having your tax refund set aside specifically for these fees provides peace of mind without dipping into your savings.
Costs to Cover After You Close
If you have already secured your home and have money left over, consider putting some of the funds toward these post-closing expenses:
- Moving Costs: Professional movers or truck rentals can be expensive.
- Rekeying the Home: It is best practice to change all the locks immediately after moving in.
- New Appliances: Remember to wait until after you close on your home to make any large purchases. Buying appliances on credit before closing can jeopardize your loan approval.
- Emergency Fund: It is a good idea to keep a house emergency fund for unexpected repairs.
Looking Ahead: Tax Benefits of Homeownership
Next tax season, you will be able to enjoy the benefits help homeowners save money. These deductions can often offset the costs of owning a home:
- Mortgage Interest Deduction: You can often deduct the interest paid on your mortgage.
- Property Tax: State and Local property taxes may be deductible up to certain limits.
- Mortgage Points: If you paid “points” to lower your interest rate, these may be deductible.
- Energy Credits: You may qualify for credits if you make energy efficient upgrades.
Visit IRS.gov to learn more about tax information for homeowners. Please consult your tax advisor regarding which specific deductions and benefits apply to your situation.
Make 2026 Your Year to Own
Put your tax refund to work towards your future! Contact our team today to see how your refund can help you get the keys to your new home.
