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6 Ways to Use Your Tax Refund to Help Buy a Home

A tax refund can be a valuable financial tool, especially if you want to buy a home.

In 2024, the average federal tax refund was $3,050, according to IRS data1—an amount that could make a real impact on your home-buying journey.

To receive your refund as quickly as possible, file your return as soon as possible, submit it electronically and opt for direct deposit rather than receiving a paper check. This can speed up processing time and allow you to receive your refund within 21 days in most circumstances.2

Here are six smart ways to use your tax refund to move closer to homeownership.


1. Put It Toward Your Down Payment

A down payment is a portion of the home's purchase price paid upfront. While the gold standard down payment is 20%, many loan options have lower minimum requirements.

For example, FHA loans require as little as 3.5% down. On a $300,000 home, this equates to a $10,500 down payment. Allocating your tax refund toward your down payment can make these initial costs more manageable.

USDA loans offer zero down payment options for eligible rural properties, and VA loans provide similar benefits to qualified veterans and service members. If you qualify for one of these loans, you can put your down payment toward other costs of buying a home.

Additionally, you'll have to decide where to store your down payment until it will be used. Be aware of factors involved with storing and accessing it.


2. Purchase Mortgage Discount Points

Mortgage discount points are fees paid directly to the lender at closing in exchange for a lower interest rate. Typically, one point costs 1% of your loan amount. For example, on a $200,000 loan, one point costs $2,000.

Investing in points can lead to interest savings over the life of the loan. Our article on mortgage points can help you calculate whether paying for discount points makes sense.


3. Apply Toward Closing Costs

Closing costs include various fees associated with finalizing a home purchase. They include loan origination fees, home inspection and appraisal costs, notary fees, and title insurance.

In Georgia, the average closing costs (not including taxes) are 1.3% of the sales price, while in Florida, they are 2.3%.3 On a $300,000 home, those averages equate to $3,900 in Georgia and $6,900 in Florida.

Using your tax refund to cover closing costs can relieve some of the financial strain of buying a home.

Using your tax refund to cover a down payment or closing costs can relieve some of the financial strain of buying a home.

4. Provide Earnest Money

Earnest money is a deposit you make to the seller to demonstrate your serious intent to purchase a home. Typically, this deposit ranges from 1% to 3% of the purchase price.4 On a $300,000 house, this equates to $3,000 to $9,000.

This deposit is held in escrow and later applied toward your down payment or closing costs once you officially close on the home.


5. Cover Home Inspection Fees

During a home inspection, a qualified home inspector thoroughly evaluates the property's structural aspects, systems and condition to identify potential issues before purchase.

The cost of an inspection varies depending on the home’s location and size. In Georgia, inspection costs typically range from $250 to $600, while in Florida they range from $250 to $375.5

While home inspections aren’t mandatory, they’re a good idea because they can help uncover potential problems and forecast future repair costs. You may also use the home inspection to negotiate with the seller, potentially getting them to agree to pay for repairs or lower the selling price.


6. Reduce Debt to Improve Your Debt-to-Income Ratio

To determine your borrowing capacity, lenders look at your debt-to-income (DTI) ratio — the percentage of your monthly income that goes toward debt payments. A lower DTI improves your chances of being approved for a mortgage and potentially helps you qualify for a lower down payment or secure a lower interest rate.6

Using your tax refund to pay down existing debts can improve your DTI and credit utilization ratio, positively impacting your credit score. A higher credit score can lead to more favorable mortgage terms.

By strategically applying your tax refund to these areas, you can strengthen your financial position and move closer to reaching your goal of homeownership.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information. Diversification does not ensure against loss.

  1. IRS.gov, “Filing season statistics for week ending March 29, 2024,” updated April 5, 2024. Accessed February 18, 2025. Back
  2. IRS.gov, “Refunds,” updated January 3, 2025. Accessed February 18, 2025. Back
  3. National Association of Realtors, “View Average Closing Costs by State,” published March 9, 2022. Accessed February 18, 2025. Back
  4. Jessica Rapp, “What Is Earnest Money?” Zillow, published November 10, 2024. Accessed February 18, 2025. Back
  5. Daniel Bal, “How much does a home inspection cost?” HomeGuide, published October 29, 2024. Accessed January 29, 2025. Back
  6. Equifax, “Why Your Debt-to-Income Ratio Matters for Your Mortgage,” accessed February 18, 2025. Back