Smart Ways to Use Your Tax Refund for Homeownership

Are you anticipating a tax refund this year? Before splurging on items like a new billiards table or a jet ski, consider leveraging that refund as a stepping stone towards homeownership. Here are three ways you could utilize your tax refund, with the expert guidance from CrossCountry Mortgage, to inch closer to your dream home.

Accumulate for a Down Payment Many people erroneously believe that purchasing a home requires a hefty down payment of at least 20%. This is simply not the case. Depending on your credit history among other factors, you may qualify to make a down payment as minimal as 3%. Moreover, there are certain loan options that require no down payment at all for eligible individuals. If your tax refund isn't sufficient for a down payment, numerous down payment assistance programs exist to fill in the financial gap. There's a plethora of such programs nationwide, but beginning with local state, county, and city government resources is an excellent start. These entities often provide financial aid to community members who demonstrate the readiness and qualifications for homeownership. Refer to this comprehensive resource for available down payment assistance options.

Settle Your Closing Costs If you've already earmarked funds for your down payment, your tax refund could be directed towards the closing costs associated with your loan. Closing costs are dependent on the loan amount, with more substantial loans generally incurring higher costs. Typically, a homebuyer can anticipate paying between 2% and 5% of the purchase price in closing fees, although this can vary depending on your locale.

Negotiate a Lower Interest Rate If you've managed both your down payment and closing costs and find yourself with leftover tax refund, it's time to strategize. Those surplus funds can be employed to purchase discount points, effectively reducing your interest rate. A "point" represents one percent of the loan amount and serves as a prepayment to secure a lower interest rate on your fixed-rate mortgage. For instance, for a loan of $300,000, a single discount point would mean an upfront payment of $3,000 at closing. However, this could lead to significant savings on interest payments throughout the loan's term. To estimate how extra points might lower your rate and benefit you based on your expected duration of stay in the home, you can use the tool provided on this Freddie Mac website.

Navigating the home buying process doesn't have to be daunting.

Reach out to a Mortgage Advisor at CrossCountry Mortgage today for further assistance!