Are you one of the many millions receiving a refund on your 2017 tax return?
Like many Americans, you may be tempted to use the refund on a mini spending spree. Easy to understand – who doesn’t like a new wardrobe, fancy dinners, or the latest electronics upgrade?
But if you’re thinking about buying that first home, resist that urge to splurge!
Here’s a few ways to use that small spring windfall to unleash a torrent of future wealth through home ownership:
- Build down-payment savings: Whether it’s a few hundred or several thousand dollars, think about depositing your refund into a down-payment savings account. The more you can put toward that initial payment, the less you have to borrow, and the lower your monthly payments. Tax refunds are relatively small for most people, so saving two or three years’ worth of refunds – along with monthly discretionary cash savings – can build a nice nest egg.
- Get closer to closing costs: Not all costs are listed in the list price. A new home buyer typically pays between 2 and 5 percent of the home purchase price in closing fees. The amount varies depending on where you live. Make sure you know where your state stands.
- Pay down debt: If you are having trouble qualifying for a mortgage due to a high debt to income (DTI) ratio, why not use that refund money to pay it down? Keep low credit card balances and make payments on time.
- Current Homeowners: We didn’t forget you! Sink a little cash into home improvements or regular maintenance. Even small improvements like replacing cabinet hardware, a new coat of paint or sealing the driveway can nudge up your home’s value and enhance bids when and if you decide to sell.
Refunds average around $3,000 for individual taxpayers. If you anticipate a refund this year, think about making it a wise investment in your home.