South Bend Home Loan

Tuesday, January 3, 2017

Can I Buy A House With My Income Tax Refund?

If you're anything like me, you probably start thinking about what you could do with your tax refund months before tax time even hits. Should I pay something off? Take a family trip? Save it for a rainy day?

There are lots of uses for that tax refund money, most of which you'd forget about soon after it was spent.

But...hey, what if you could do something with that money that would change your life?  Is it possible that you could buy a HOUSE with your tax refund?

Yes, you likely could get into a house of your own with your tax refund.

Let's talk about how.

3% Down Conventional

First let me say, there is no 'one size fits all' mortgage type. Some buyers get the most benefit from USDA financing, some from VA, some from FHA and some from conventional. For the majority of my home buyers, though, a conventional mortgage offers the most financial benefits. 

(To learn more about why conventional financing rocks,

In 2016, the requirements for getting a conventional loan lightened with the minimum down payment dropping from 5% of the price to 3% for many buyers, making it an even better option than it was before.  Suddenly a buyer could get all the benefits of a conventional loan (no financed fee, removable PMI, easier home buying process) without having to invest too much upfront.

(To learn about my favorite 3% down conventional option, 

Conventional loans have one unique thing that needs to be considered when trying to buy a house with less money needed upfront, though - the seller concessions cap.

Maximum Seller Concessions

When you're buying a house, you are allowed to ask the seller to help pay for the costs you incur with getting the loan. They can also pay for the items that need covered upfront with a home purchase, like your first year of home insurance and your insurance and tax escrows. Together, these items are typically referred to as 'closing costs and prepaids.'

The seller can't always pay for all of these for you, though. It depends on the price of the home you are buying and the type of loan you are getting. The amount the seller can give is capped as a percentage of the sales price and the percentage allowed is different for different types of loans.

For conventional loans, the most the seller can give is 3% of the price. On lower priced homes (houses under $110,000ish), this will likely not cover all of the costs so you, the buyer, will have to pay for the rest.

Show Me The Numbers Please...

Are you a numbers nerd like me who loves a good chart?  If so, I've got your back!  Here's a table showing how much the buyer would need for the down payment and closing costs/prepaids assuming the seller agreed to pay the maximum that is allowed towards the buyer's cost.  As you can see, the amount the buyer needs stays the same even if the price is lower simply because the seller can't cover all the closing costs on a lower priced home.

Home Price 3% Down Payment  Typical Closing Costs/Prepaids  Max Seller Can Contribute (3%) Amount Needed By Buyer
                            75,000                               2,250                               3,300                               2,250                               3,300
                         100,000                            3,000                               3,300                               3,000                               3,300
                         125,000                            3,750                               3,300                               3,300                               3,750
                         150,000                            4,500                               3,300                               3,300                               4,500

3.5% Down FHA

If you're wanting to buy a lower priced house but can't spend as much upfront as the conventional loan needs, a FHA mortgage might be the better fit.

FHA financing only needs 3.5% down, so not much more than the conventional option, and the seller is allowed to give up to 6% of the price towards your closing costs and prepaids. The seller being able to give more can keep the upfront amount needed on the lower priced house to a more affordable range for many buyers:
Home Price 3.5% Down Payment  Typical Closing Costs/Prepaids  Max Seller Can Contribute (6%) Amount Needed By Buyer
                            75,000                               2,625                               3,300                               3,300                               2,625
                         100,000                            3,500                               3,300                               3,300                               3,500
                         125,000                            4,375                               3,300                               3,300                               4,375
                         150,000                            5,250                               3,300                               3,300                               5,250

IHCDA Next Home

If your tax refund still isn't going to cover the amount needed, you aren't out of the home buying game yet. At that point, we'd see if you could qualify for down payment assistance from IHCDA.

IHCDA stands for Indiana Housing and Community Development Authority. It is a department of the Indiana state government that provides eligible home buyers with down payment assistance. Because of the help provided by IHCDA, many buyers can purchase a home needing only $500-$1,000 to cover the upfront earnest money. They often get that earnest money back at closing too, making this a truly zero down home buying option.   

(To learn about the downsides to this down payment assistance program.

Bottom Line

If none of the options above are a fit for you, there still might be other ways to cover your down payment. Gifts from relatives are often allowable sources as are loans against something you own like a 401(k) or a vehicle.  

Bottom line, there's likely a way to cover your down payment at any time of the year. This time of year with that tax refund money flowing in, though, it might be easier than most.

So...are you wondering if this might be the right time for YOU to buy a house?  I'd be happy to help you figure that out!  Just give me a call or drop me a line at  Together, we'll see if 2017 might be your year to own a home of your own.

To learn more about low down payment options or any other aspects of home financing, contact Lori Hiscock at  

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.
Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.
Ohio Mortgage Broker Act License #MBMB.850220.000

The Florida Office of Financial Regulation License #MLD1182