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How to Build a Down Payment with Tax Returns and Stimulus Checks

Every once in a while, the stars align and things fall perfectly into place. That’s the case right now, with tax returns and stimulus checks coming in just in time for the spring home buying season! With a little planning, you can use this income to put together a down payment for your next home.


How much will you need for a down payment?

The answer depends on the price of your home and the type of loan you receive. But for our example, let's look at the average sales price of a home in California that you might buy with an FHA loan (a good loan for first-time homebuyers who may not have a large down payment or a strong credit history).

People on porch

By the Numbers:

Home price: $400,000
Down payment: 3.5% of purchase price
Total needed for down payment: $14,000


Your actual figure may be higher or lower, so it’s a good idea to sit down with a loan officer even before you’re ready to buy. They can help you figure out what price range fits your budget, what kind of loan makes sense for you, and approximately how much you’ll need for your down payment.


Remember, you’ll still need some money in the bank after that. Not only will you have to pay your regular bills, but you’ll also need enough to show that you can cover one to three months of house payments after you move in. Lenders call these funds your “reserve requirements,” and they’re designed to make sure you can afford what you buy.


The final number you come up with may sound big, but here’s the good news. With extra money coming in from the government right now, you can reach your goal sooner than you think!


How much will the government give you?

Tax returns can vary quite a bit, with some people owing money at the end of the year and others getting refunds of taxes they overpaid. However, if you take the average federal tax return for 2020 and the most recent tax stimulus payment, the numbers really start to add up. And if you’re planning to buy a home with your spouse, your situation may be even better!

Blog_Stimulus for DP-AT2

By the Numbers (Single):

Average federal tax return (tax year 2020): $2,707

2021 Covid stimulus check: $1,400

Total saved for down payment:  $4,107


By the Numbers (Couple):

Average federal tax return (tax year 2020): $2,707

2021 Covid stimulus check: $2,800

Total saved for down payment:  $5,507


Reaching your goal 

As you can see, you're making a pretty good start on reaching your goal of $14,000 for a typical FHA down payment.


Once you get your checks, what do you do with them?

If you chose to have your return directly deposited to your bank, your stimulus check was probably deposited that way, too. If that’s the case, you don’t have to do anything right now—except avoid spending it! However, if the money came in the form of a check, you’ll need to take a couple of extra steps to prepare for your mortgage paperwork.

  1. Make sure the amount on your tax refund check is exactly the same as the amount on your tax return. (Your loan underwriter will need to match these numbers to document where the money came from.) You don’t have to do anything special for your stimulus check payment.

  2. Deposit the entire check(s) into your bank account. For your tax return, the deposit should show the same number as your tax return. If you need to take money out of the bank, you can withdraw some after that…but if you don’t need it for other expenses, try to resist the temptation. Remember, you want to get into your home as soon as possible!

Where will the rest of the money come from?

You may be able to save up the rest of your down payment by yourself over time. However, some states also offer down payment assistance which covers all but one percent of your down payment. It’s also possible to use gift funds from family members to cover part of this amount. Your loan officer will be happy to explain your options.

Thanks to this season’s windfalls, you can cut the amount of time it takes to save up for your next home. Watch your mail or bank account this spring, because help—and a path to home ownership—is on its way!


You're closer than you think

There are several things you can do to get ready to buy your first home, from getting pre-approved to improving your credit score to talking with a loan officer to understand your options. Ready to get started?  Download our free step-by-step guide for first-time homebuyers today!


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Could Mortgage Pre-Approval Hurt Your Credit Score?

  If you’re thinking about buying a house, you’ve probably heard the term “credit score.” This 3-digit number tells a bank how likely it is that you can pay back your loans, and it’s based on things like the amount of debt you have, loans you’ve had in the past, and your repayment history. The higher your score, the more likely it is that a bank will lend you money.   You’ve earned your score by taking good care of your finances, so you want to be careful about anything that might take away from it. And one thing that can subtract points from your score is a credit inquiry.   “But wait!” you say. “Aren’t I supposed to get pre-approved for my mortgage before I start looking at houses? And doesn’t a pre-approval count as a credit inquiry?”   Good question, but when it comes to pre-approval, your credit score is safe. Here’s why.  


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