Tax Day is quickly approaching! Many employers have already released their 2022 tax forms therefore allowing employees to get a head start on filing. There are many online services that guide you through your taxes (some are even free!), so it’s a great idea to get started as soon as you can and not put it off. If you’re wondering if you can you use your tax refunds to help you buy your next home in Asheville, here are some things to consider.
Pay Off Existing Debts
While the amount you may have received as a return 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.
Paying down your negative debt can help improve your credit score and debt-to-income ratio so the approval process will be smoother. That can help you when it comes to qualifying for a mortgage and buying your next home.
Apply Towards Your Closing Costs
Tax refunds can also offset your closing costs when purchasing a home. Buyers are often required to bring cash for closing costs to the table, but you may not have factored these into your purchase plan. You can use your refund to take a little of the edge off the cost.
Typical closing amounts are usually about 1% to 1.5% of the loan cost. There are other sometimes unexpected costs associated with buying a home that your refund could help you pay as well.
Buy Down Your Mortgage Rate
To help make your home purchase more affordable, you could consider using a portion of your tax return to buy down the interest rate – that could potentially save you thousands in interest costs over the years, and helps you by reducing your overall housing payment and debt-to-income ratio (DTI).
Start Building 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 early to help pay off these 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 it for Future 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 recurring expenses.
For example, if your home cost $300,000, that’s a recommended $3,000 per year to put into an expense account. You can achieve this by setting aside $250 a month to go toward these costs, and you can start with your refund.