Get ready, tax season is quickly approaching! According to IRS data, the average tax refund for the 2020 filing season was $2,741 and the IRS deals out over 100,000,000 of them. If you’re expecting to get a refund this tax season, instead of spending it on splurge purchases or vacations, consider using it to invest in your future!
One of the best long-term investments you can make is putting money into real estate. As Mark Twain put it, “Buy land. They’re not making it anymore.” Despite the ups and downs of the real estate market, most properties increase in value over the long term. So, with tax season approaching and returns on their way, here are 5 ways to use your tax return to buy a home:
1. Put It Towards Your Down Payment
A down payment is the portion of the home price you must pay upfront. The larger the down payment, the less you will have to borrow and pay in interest over time. When you receive your tax return, using it toward your down payment is one of the best decisions you can make to invest in your future. If you’re curious to see how much house you can afford at your current income level, use our mortgage affordability calculator.
2. Put It Towards Insurance
After purchasing your home, you will likely have to pay insurance costs. Usually, if you put down less than 20% lenders will require you to purchase PMI (Private Mortgage Insurance). This protects them if you were to default on your mortgage. Your tax return can be used to cover this cost upfront, or you can use the return to pay a monthly premium.
3. Apply It to Closing Costs
Closing costs can come as an unpleasant surprise for a lot of new home buyers. They usually range between 2% - 5% of the total loan amount. Closing costs can include:
- Appraisal fee
- Inspection fee
- Attorney fees
- Title insurance
These costs can’t always be rolled into your monthly mortgage payment and even if they can, it’s not always the best decision because you will have to pay interest. It’s good to prepare ahead of time, and your tax return can be a great way to pay these costs. For a more in-depth list of closing costs and mortgage lingo, click HERE.
4. Use It to Cover Moving Costs
Regardless of how much you’re moving or how far, the process of moving isn’t cheap. The average cost of a local move is $1,250. Here are some possible moving expenses to consider that your tax return could cover:
- Renting a moving truck
- Packing materials
- Travel fees
- Liability and valuation coverage
5. Use It to Refinance
If you’re looking to possibly save thousands on your current home, refinancing is the way to go. You have the possibility of lowering your interest rate, paying off high-interest debt, dropping your mortgage insurance, and shortening the loan term. If you decide to refinance using your tax return, it's best to know your options. To learn more about a cash-out refinance and the options available to you, click HERE.
If you’re curious about what your best options are for investing your tax return into a home, text us @ 806.798.4607!