Tax refunds are expected to increase by as much as $1,000 in 2026, thanks to new and expanded tax breaks coming from the One Big Beautiful Bill Act (OBBA).
As of March 6, 2026, the average federal tax refund for filers with direct deposit is nearly $3,700, up 10.6% from 2025.
That's a lot less than the median down payment, which was $78,831 at the end of 2025, but it can still help get you on your way to a new home.
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1. Improve your credit score
If you're financing your home purchase, your credit score is the biggest factor in determining acceptance and your interest rate. The fastest way to improve your credit is to pay down existing debts, especially those with high interest rates. Knocking out credit card bills will also lower your debt-to-income and credit utilization rates, further improving your score.
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7.99%–35.99%
Up to $50,000
9.95% to 35.99%
$2,000 to $35,000
If your credit history has mistakes in it, you may want to use your refund to hire a credit repair company. They'll send formal dispute letters to credit bureaus and merchants to get the error removed. You could do it yourself, but they have preexisting relationships and tools that can streamline the process.
2. 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. On a $300,000 house, that equates to $3,000 to $9,000.
The deposit is held in escrow and later applied toward your down payment or closing costs when you officially close.
3. Down payment
Your down payment is the portion of a home's purchase price that you pay up front. It's highly unlikely your refund will cover your entire down payment, but it can give a serious boost to your housing fund.
FHA loans require as little as 3.5% down, and USDA loans and VA loans offer zero-down-payment options for eligible borrowers. There are also many proprietary loans from commercial lenders with low-down-payment requirements, grants and forgivable loans.
4. Closing costs
Closing costs include fees associated with finalizing a home purchase, including application and origination fees, home inspections and appraisal costs, notary fees and title insurance.
They usually range between 2% and 5% of the house's purchase price. On a $200,000 home, closing costs alone can run to $10,000.
5. Mortgage discount points
Mortgage discount points lower your interest rate for the life of the mortgage. A lender may allow borrowers to purchase as little as a fraction of a point or as much as four points.
Points are paid directly to the lender at closing. Typically, each point costs 1% of your loan amount and lowers your rate by 0.25%. (On a $200,000 loan, one point would be $2,000.) So, you need to stay in the home long enough for the savings to exceed the upfront cost.
6. Homeowners insurance and property taxes
Even though homeowners insurance is an ongoing cost, many lenders require prepayment of the first year of premiums by the time you close.
If the seller already paid taxes for a period after closing, you reimburse them for your portion. The lender may also require two to six months of property taxes up front.
7. Moving costs and other expenses
Whether it's renting a U-Haul or hiring movers, expenses pile up when moving into a new home. There may also be a deposit for utilities, as well as money for furniture, renovations and more
A high-yield savings account is an excellent place to stash your refund until you need it.
FAQs
How much do you need for a down payment?
Can you buy a home with no down payment?
How much down payment do I need for a $200,000 home?
The amount of your down payment depends on your finances and your lender. But to put at least 3% down on a $200,000 home, you need to have about $6,000 in cash.
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