Are you planning to purchase a home in 2024? Homeownership is a big investment in your financial future, so let’s take a look at six ways your tax refund can help you prepare for everything that is involved in the home-buying process.
1. Contribute to your down payment: This is the most common and impactful use. A larger down payment reduces the amount you need to borrow, lowering your monthly mortgage payment and potentially qualifying you for a better interest rate.
2. Cover closing costs: Aside from your down payment, closing costs typically range from 2% to 6% of the purchase price and can include origination fees, appraisal fees, title insurance, and recording fees. Using your refund towards closing costs helps ease the financial burden at closing. See more on closing costs here.
3. Buy discount points: You can use your refund to buy discount points, which are upfront fees paid to the lender in exchange for a lower interest rate on your mortgage. This can save you money over the life of your loan.
4. Use it to cover moving costs: Moving can be expensive and definitely adds up! You can use your refund to help cover costs such as paying a moving company, renting a moving truck, purchasing boxes and packing materials, or temporary storage.
5. Pay off debt: The interest rate on your mortgage and your loan terms depend on your credit score. That’s why your credit should be in good shape before you apply for a mortgage. If your score needs some work, build your credit score back up by paying off debt. If you have credit card bills or late payments, your tax refund can help pay off debt and ultimately boost your credit score. This can give you a better chance of securing a lower mortgage rate and better loan terms.
6. Build your emergency fund: A healthy emergency fund is crucial for any homeowner. With a financial cushion, unexpected expenses like repairs or appliance replacements are easier to manage when unforeseen expenses are needed.
Here are some additional points to consider:
Be mindful of your overall financial picture: While using your tax refund for homeownership can be beneficial, ensure it doesn't leave you financially vulnerable in other areas. Maintain a sufficient emergency fund and address any high-interest debt before allocating funds toward the house.
Consult with a financial advisor: They can help you assess your financial situation and determine the best way to use your tax refund.
Explore government assistance: Depending on your eligibility, tax credits or down payment assistance programs might be available to help you with your home purchase.
Remember, using your tax refund to purchase a home is a significant financial decision and can help you become a homeowner in more ways than one. Before making a decision, carefully evaluate your financial health, homebuying goals, and alternative uses for the refund.
If you’re ready to buy a house, apply for a mortgage at Polaris Home Funding. We can help you determine your affordability and get you started on the buying process!
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