Tax Refunds and Buying Your Next Home
Tax season is here! This means potential tax refunds are right around the corner which can be helpful if you have been thinking about purchasing a home. So can you use your tax refunds to help you buy your next home in Asheville? Here are some things to consider.
Pay Off Debts
While the amount you get back may not be enough for a down payment or to buy a home with cash, there are some productive things you can do with the money. One important way you can use your refund is to pay down debts.
This can help improve your credit score and debt-to-income ratio so the approval process will be more satisfactory. That can help you when it comes to qualifying for a mortgage and buying your next home.
Pay Closing Costs
Tax refunds can also offset your closing costs. Buyers are often required to bring cash for closing costs to the table, but you may not have factored these into your purchase price. You can use your refund to take a little of the edge off the experience.
Typical closing costs are usually about 1% to 1.5% of the loan cost. There are other fees that your refund could help you pay, such as inspections or an appraisal fee.
Buy Down the Rate
To help make your home purchase more affordable, you can use a portion of your tax return to buy down the interest rate. That can save you thousands in interest costs over the years and helps you qualify, by reducing your overall housing payment (and DTI), debt-to-income ratio.
Start an Emergency Fund
There will always be additional costs when you buy a home, you may just not know about them until you’ve moved in. Starting an emergency fund to help handle unforeseen situations in the future is a great way to utilize your tax refund.
Your refund can be a seed for your emergency fund, but you should also:
* Track your expenses and set aside money every month.
* Set a goal for your emergency fund.
* Only tap into it for home repairs.
* Keep the money safe and accessible.
Save for Expenses
An emergency fund isn’t the only possible savings you can start with your tax refund. You may also want to create an expense account with this money. Many experts suggest that you set aside 1% of the cost of your home per year to help you with these expenses.
For example, if your home costs $300,000, that’s $3000 per year. You can set aside $250 a month to go toward these costs or get a head start and use your tax refund.
If you have questions about your current situation and would like guidance on getting ready to purchase a home, give us a call! GoPrime Mortgage, Inc. . can help you start the process for preapproval or get you on the right track. Contact us to learn more.
