Quick answer
Yes. Your tax refund is your money, and it can go toward a down payment or closing costs. If you are using down payment assistance or 100% financing, Christopher notes it may be useful as a reserve fund in your bank account. Keep a clear paper trail, because lenders generally want to see where large deposits came from. Before you spend it elsewhere, ask how it would help most.
Rules on this page were checked on against the Fannie Mae Selling Guide and Valor Mortgage’s guides. Program terms are subject to agency and lender guidelines and may change, and individual lenders can set stricter rules.
A good way to use your tax refund
Transcript: What's a good way to use your tax refund? There's a couple different ways. One, you could use it toward a down payment in purchasing a home. Or two, if you're looking to do down payment assistance or 100% financing, we may be able to use it as your reserve fund in your mortgage process. If you have questions, give us a call. We'll be happy to help you. We'll be happy to get you to buy with confidence and to buy with Valor.
Reserve requirements vary by program and lender. Not every loan requires reserves, and you may still have closing costs on a 100% financing loan.
Where could a refund do the most good?
| Use | How it can help | Keep in mind |
|---|---|---|
| Down payment | Lowers your loan amount and loan-to-value | You may need less than you think |
| Closing costs | Reduces the cash you need at the table | Some of these costs can be covered in other ways, depending on the loan |
| Reserves | Shows savings left after closing, which may strengthen a file | Reserve rules vary by program and lender |
| Paying down debt | May improve credit or debt-to-income | Ask first which debts are worth paying |
General information. Program terms and eligibility are subject to agency and lender guidelines and may change.
How do you document it?
Keep it simple and easy to follow:
- Have it deposited directly into the account you will use for your down payment and closing costs.
- Keep the bank statement that shows the deposit from the IRS or state source.
- Keep a copy of your filed return showing the refund.
- Avoid moving the money between accounts unless you need to, since each move can add a document to explain.
Lenders usually look at two months of bank statements, so large deposits in that window may draw a question. Tennessee has no state income tax on individuals, so your refund will most likely be federal.
What if the refund isn’t enough?
Look at the full picture. Some loans need little or nothing down, and programs may help with the rest:
- Buying with 0% down on VA and USDA loans, if you are eligible
- Tennessee down payment assistance
- The difference between closing costs and a down payment
Does the timing of your refund matter?
It can. If you’re planning to buy soon after tax season, tell your loan officer when you expect the refund and how much. A lender can only count money you can document, so don’t rely on a refund that hasn’t arrived. If you are self-employed, your new return may also change the income a lender can use.
Tax refund FAQ
Will the underwriter ask about my refund deposit?
It may come up, especially if it’s large compared with your income. A statement showing the source and a copy of your return usually make it easy to explain.
Can I cash my refund and keep it at home?
It’s better not to. Cash is hard to document, and a lender may not be able to count it. Keep it in the bank.
What are reserves?
Reserves are funds you would still have after closing, often measured in months of housing payments. Requirements depend on the program and your file, and not every loan requires them.
Where these rules come from
| Rule or figure | Source | As of |
|---|---|---|
| Reserves | Fannie Mae Selling Guide B3-4.1-01 | Nov 5, 2026 |
| Closing costs and down payment | Valor Mortgage closing cost guide | Valor Mortgage guide |
Related answers and guides
- How early should you prepare to buy a house?
- Should you pay off debt before applying?
- What does loan-to-value mean?
- More answers on buying a home.
- About Christopher Armantrout.
Call me at (615) 671-9178. That’s the fastest way to get a straight answer on what you’d qualify for and how your refund could fit your purchase.
If it’s after hours, grab a time on my calendar. Pick a slot that works and I’ll call you then.
If your life is too chaotic for a phone call right now — I understand — start an application and I’ll review it and reach out with a plan.
Valor Mortgage, LLC · Christopher Armantrout, Mortgage Loan Originator, NMLS #1210804 · Valor Mortgage, LLC is powered by Encore Lending Group, LLC, NMLS #1249911 · Licensed in Tennessee · Equal Housing Opportunity
724 S Main St, Springfield, TN 37172 · (615) 671-9178 · christopher@valor.mortgage · NMLS Consumer Access
The dollar figures on this page are illustrative examples for general information only and are not an offer, a rate quote, or a commitment to lend. Actual interest rates and APRs vary based on loan program, borrower qualifications, property, market conditions and other factors. Program fees, limits and terms are set by the agencies named above and change without notice; all loans are subject to credit approval, income verification and property appraisal. Not all applicants will qualify.