10 Ways To Put Your Tax Refund Toward a New Home

Tax season. Two little words that, when combined, can induce anxiety in the hearts of many. But for others, the words inspire hope of receiving that oh-so-glorious tax refund. Tax season is the perfect time to move from renting an apartment to homeownership. And if you’ve wanted to upgrade for some time, your refund could be the boost you need to finance your next home. Check out these ten ways a tax refund can help you invest in your first or forever home today!

1. Add to Your Down Payment

Chances are, you could use some additional cash to put toward your down payment. What better way to add to that one-time cost at closing than with your newly earned tax refund straight from Uncle Sam?

Setting aside a decent amount of money all at once can put you on the fast track to building your savings and help motivate you to continue saving once you have the keys to your new place. And while you don’t necessarily need to put 20% down to purchase a home, having the option to do so means you can avoid paying private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%.private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%..

And remember, you have options when it comes to making the down payment. Gift funds are another way to put the extra income you receive toward purchasing your new home.

2. Pay Down Debt

If credit card or student loan debt is holding you back from becoming a homeowner, use your tax refund to pay those lingering bills and charges. When you apply for a mortgage, lenders look at your debt-to-income (DTI) ratioThe percentage of your gross monthly income that is used to pay your monthly debt and determines your borrowing risk.debt-to-income (DTI) ratioThe percentage of your gross monthly income that is used to pay your monthly debt and determines your borrowing risk.. Your lender will calculate your monthly debt payments and gross income to assess your current finances and lending risk. The lower your debt and the higher your income, the more money you’ll earn in pre-qualificationAn early estimate of how much you might be able to borrow from a lender.pre-qualificationAn early estimate of how much you might be able to borrow from a lender..

Expert Tip

Paying down debt can also strengthen your credit score – another factor lenders look at when determining loan eligibility.

3. Stage Your Home for a Quick Sale

Things can get complicated when you try to sell your current home and purchase your new home simultaneously. Staging your home for a quick sale can get the money you need to finance your next place into your pocket faster, and your tax refund can help! Use your refund to “dress up” your home’s interior and exterior to let buyers know it’s move-in ready. A fresh coat of paint, hardwood floors, and well-kept landscaping can immediately improve your home’s market value.

4. Pay for a Home Inspection

Once you’ve found the home you want to purchase, paying for an inspection is not a bad idea. A home inspection will tell you how safe the new place is and how critical features like the roof, plumbing, and HVAC are functioning. You don’t want to buy a home and discover an expensive repair is necessary on top of your new mortgage. But remember, when you’re facing a “seller’s market,” demand is higher than the supply. Requiring a home inspection can make your offer less competitive than buyers willing to purchase a home as-is.

5. Make an Earnest Money Deposit

Provide the seller with an earnest money deposit (EMD) to make your offer stand out from other suitors and show your good faith in completing the transaction. Generally, an EMD is no more than five percent of the property’s sale price, but every situation is different.

Expert Tip

If you back out of the deal without reasonable cause, you won’t receive your EMD back.

6. Pay Closing Costs

Closing costs cover services and fees like property taxes, homeowners insurance, title search, and appraisals. Usually, you can expect to see between 2-6% of your purchase price in closing costs – depending on your location. When added to your down payment at closing, these fees can certainly add up, so make them more manageable by using your refund to pay them off. With any luck, some seller concessions will be available, too.

7. Purchase Discount Points

Discount points give you the opportunity to buy a lower interest rate for the life of the loan by prepaying some of your interest upfront. If you’re unable to get a lower rate because of your credit score, you may still be able to take advantage of lower rates by paying for points. Each point will lower your interest rate by a certain percentage or fraction of a percentage, and your lender will establish the maximum number of points you can purchase.

8. Pay Moving Costs

Moving isn’t cheap, but your tax refund can help! Put the money toward renting a moving truck, purchasing packing materials, or feeding all the friends and family who came out to help you make the big move.

9. Splurge on New Appliances

Unless you’re buying a newly constructed house, the appliances you’ll inherit will likely have some age on them. Purchasing a new set of appliances is probably not at the top of your to-do list; however, there are some excellent reasons why it should take priority. One of the biggest reasons is to prevent any issues from arising after making your big move.

Many household appliances have a lifespan ranging from 8-12 years, and it’s best to replace them before they stop working or, worse, before they cause harm to your new home. You can also save on your utility bills with new energy-saving appliances.

10. Build an Emergency Fund

It’s incredibly common to go into homeownership (especially as a new homeowner) without considering the maintenance expenses in your future. While it isn’t always the most glamorous thing to spend your money on, home maintenance is kind of like Thanos – inevitable.

Maybe your windows need replacing or a plumbing emergency requires a professional. Home repairs can put a massive dent in your wallet, and they may even push you into debt if you’re not financially prepared. Put your tax refund aside for a rainy day and gain peace of mind knowing you’re covered as a new homeowner.

Tax Time and You’re Feeling Fine!

Feeling inspired to use your tax refund on a new home this year? We hope so! Reach out today so we can get started!