According to recent statistics, millennials receive an average federal income tax refund of just over $3,000 and an additional amount from state income tax refunds. And while those who do file income tax returns and expect an income tax refund, it’s often with no shortage of anticipation waiting for the tax refund to hit their bank account. For most, it’s free money but in reality it’s not. You just loaned it to the federal government interest free. Yet the feeling can’t be ignored. It’s found money. And often spent on some short-lived luxury item that wouldn’t otherwise be purchased with funds from a pay check. Yet that same refund doesn’t have to go toward a high-end HDTV. It can help buy a house.
Most loans, with the exceptions of VA and USDA mortgages, require some sort of down payment. The FHA program asks for a less than 4% down payment of the sales price. For a $150,000 sales price, that’s $4,500. With an average tax refund of $3,000 the borrowers need to save or otherwise provide just $1,500 more. There are also closing costs to consider and your loan officer can give you an idea on what to expect but borrowers can negotiate with the sellers to pay for some or all of their closing fees. Lenders can help, too.
Saving up for a down payment is perhaps the biggest obstacle most first timers face when buying and financing a home. But when the income tax refund looms each and every year, this time potential homeowners can think about becoming a homeowner and lessening the amount of cash needed at the closing table. While the income tax refund may not cover all costs needed, it can come very close to doing just that.