Tax season is closing in, which means you might get money back in your pocket from last year. Refunds are a great source of funds to help you buy a new home, but there are some rules that come with putting your tax return toward purchase costs - particularly if you get a refund advance.
It’s common to receive an advance of your expected refund when you do your returns through an automated or walk-in tax service. Since the money is, essentially, a loan of your anticipated refund, it has to be treated like what it is: borrowed funds. We consider the loan as being secured by the amount of your actual refund. We would need the loan documents to show this, but assuming we have it already, it would be treated like a loan secured by a financial asset (i.e. the refund), so no payment is required.
To actually document the refund amount we would need to record the source of the deposit and the terms of the loan to show the loan will be repaid by your tax service’s receipt of your refund. To keep a timeline of when that loan might be paid off, you can check your refund status on the IRS's website.
Here’s a few ideas for how you can use your refund toward your new home:
- Closing costs
- Down payment
- Moving costs
- Inspection or appraisal fees
- Insurance premiums
So, while it might be tempting to go on a spending spree when your refund hits the bank, you CAN use those funds to invest in your future and purchase a new home. It just requires a little more documentation. Are you ready to use your refund to buy your dream home? Reach out to an experienced Flat Branch Home Loans lender!
