When it comes to purchasing a home, one of the biggest hurdles for many people is coming up with the down payment. The down payment is the upfront cash payment that you make when you purchase a home. Typically, the general requirement for conventional loans is 20% of the purchase price of the home (note, there are many programs with lower down payment requirements - ask us about our JMC Dream Loan Program). Still, the down payment can often represent a substantial amount of money for many people, and it may take years to save up enough cash to cover this expense.

However, if you are expecting a tax return this year, you may be able to use that money to help cover the cost of your down payment. Here's what you need to know.

What is a Tax Return?

First, let's define what a tax return is. A tax return is a document that you file with the government that shows your income and expenses for the year. Depending on your circumstances, you may be entitled to a refund from the government if you have paid too much in taxes. This refund is the tax return, and it can come in the form of a check or a direct deposit into your bank account.

Using Your Tax Return as a Down Payment

If you are looking to purchase a home, you may be able to use your tax return as a down payment. While the amount of your tax return may not cover the entire down payment, it can be a significant help. For example, if you are looking to purchase a home for $300,000, using Jersey Mortgage's JMC Dream Loan program, a 5% down payment (for quailfied borrowers) would be $15,000. If your tax return is $5,000, that reduces the amount of cash you need to come up with to $10,000 (accounting to a whole third of your required down payment).

However, it's important to note that not all lenders will allow you to use your tax return as a down payment. Some lenders may require that the down payment be sourced from your own funds, and they may require documentation to prove where the funds came from. Additionally, using your tax return as a down payment may not be the best option for everyone. If you have other debts or expenses that need to be paid off, it may be better to use your tax return to address those issues rather than putting the money towards a down payment.

It's also important to consider the long-term impact of using your tax return as a down payment. While it may help you purchase a home, it also means that you are putting less money down upfront, which can increase your monthly mortgage payments. Additionally, if you are not able to put down 20% of the purchase price of the home, you may be required to pay private mortgage insurance (PMI), which can add to your monthly expenses.

Final Thoughts

Using your tax return as a down payment for a mortgage can be a great way to help cover the upfront costs of purchasing a home. At the end of the day, it is about options - and exercising the option to put your tax return to advancing your financial goal and dream of homeownership is definitely worth looking at. However, it's important to consider all of your options and to talk to your lender to see if this is an option for you. Schedule a no-stress, no-obligation consultation appointment with a Jersey Mortgage Loan Officer to review all of your options, to include the use of your tax return for down payment, and an overall assessment of your financial readiness for homeownership.