Are You Getting An Income Tax Refund?

If you’re getting a tax refund this year and you’re thinking about buying a home, it’s worth pausing before you spend it. A refund can be one of the fastest ways to boost your down payment or cover closing costs — here’s how to make the most of it.

Put it toward your down payment or closing costs

Even a modest refund can make a real difference toward your down payment, especially on loan programs that allow as little as 3% down. It can also help cover closing costs, which often catch first-time buyers off guard since they’re separate from the down payment itself. Your IRS tax refund is considered “seasoned funds” and are accepted for funds for closing.

Consider adjusting your withholdings

If you consistently get a large refund every year, it’s worth reviewing your withholdings. A big refund means you’ve been giving the government an interest-free loan all year — that money wasn’t earning interest for you, and you didn’t have access to it when you may have needed it. Adjusting your withholdings so more of your paycheck comes to you throughout the year, rather than in one lump sum at tax time, can give you more flexibility to save consistently toward a down payment instead of waiting for a once-a-year windfall.

Avoid refund anticipation loans

If you’re saving for a home, steer clear of refund anticipation loans or advance-refund products. They come with fees and interest that eat into the very money you’re trying to save — getting your refund a few weeks earlier isn’t worth losing part of it to loan costs.

Pay down high-interest debt first, if it’s holding you back

If credit card balances are affecting your debt-to-income ratio or your credit score, using part of your refund to pay those down can improve your mortgage qualifying position — sometimes more than adding the same amount to savings would. It’s worth running the numbers both ways before you decide where the money goes.

Not sure whether your refund is better used toward a down payment or paying down debt first? Let’s talk through it — the right answer depends on where you are in the homebuying process.

Read: Washington State Homebuyers Guide or Home Buyer’s Guide

Last reviewed: July 2026