Leveraging Your Tax Refund for Homeownership

This year, the Internal Revenue Service reports a noteworthy increase in the average tax refund. Surpassing last year's figures, the average refund currently stands at over $3,400, showcasing a remarkable 13.7 percent surge. With this financial boost, regardless of whether you receive a few hundred dollars or several thousand, have you considered using your tax refund to embark on the journey of homeownership? Allocating a portion of your refund towards a down payment can yield long-term benefits, such as reducing your borrowing amount and potentially eliminating the need for mortgage insurance. Moreover, this can enhance the appeal of your offer to sellers, positioning you favorably against competitors. If you anticipate a tax refund this year, let us explore how CrossCountry Mortgage can assist you in leveraging this opportunity to purchase your dream home.

Maximizing Your Tax Refund for a Down Payment

Saving for a down payment can pose a challenge, particularly for first-time homebuyers. However, utilizing your tax refund as a valuable contribution to your down payment proves to be a smart move. Unlike other funds, your tax refund typically does not require extensive sourcing or seasoning. Furnishing a copy of the treasury check and a bank receipt validating the deposit is usually sufficient. The more you can set aside for your down payment, the less you'll need to borrow when the time comes to make your purchase. It's important to note that saving a substantial sum of money is not the only route to homeownership. According to Freddie Mac, the current average down payment ranges from 5 to 10 percent, rather than the traditional 20 percent. If you desire a more detailed understanding of how your tax refund can propel you towards homeownership, CrossCountry Mortgage offers an array of mortgage options, including FHA loans with a minimum down payment of 3.5%, conventional loans (with PMI) requiring a 3% down payment minimum, VA loans providing 100% financing, USDA loans offering 100% financing, and Jumbo loans with a 15% down payment minimum (without PMI). Furthermore, if your tax refund falls short of covering the down payment, you can explore down payment assistance programs designed to bridge the financial gap. Various state, county, and city governments provide financial aid to qualified individuals ready to embark on homeownership. By evaluating your house hunting price range, you can weigh your options effectively, and if you have any queries, our local Mortgage Advisors are here to offer guidance.

Harnessing Your Tax Refund to Cover Closing Costs

Closing costs vary depending on the specifics of your loan, generally increasing as the borrowed amount rises. Once your offer is accepted, you can anticipate paying anywhere from 2 to 5 percent of the purchase price as closing costs. So, what exactly do closing costs entail? When purchasing a home, your mortgage lender is obligated to disclose all fees associated with the transaction. These fees are outlined in your loan estimate and later specified in your closing disclosure statement. They can be categorized as prepaid and non-recurring closing costs. Prepaid costs encompass regular homeowner expenses, while non-recurring costs include fees and charges involved in processing your mortgage. Some examples include title insurance, title recording fees, fees for credit reports, loan origination fees, inspection fees, transfer taxes, appraisal fees, and mortgage insurance (if applicable). It's essential to note that these costs may vary based on your location.

Seize the Opportunity to Lower Your Interest Rate

Were you aware that you can utilize mortgage points, often referred to as discount points, to decrease your interest rate? Mortgage points are paid upfront during closing, effectively lowering the interest rate on your loan. Here's how it works: by purchasing points, you're essentially paying interest in advance. The extent to which the mortgage rate drops depends on the number of points acquired. For instance, if you are borrowing $300,000, purchasing one discount point would require an upfront payment of $3,000 at closing. This investment could lead to substantial savings in interest payments throughout the loan's lifespan. It's important to note that not all homeowners choose to purchase points upfront, as refinancing remains a viable option down the line. However, if you don't plan to occupy your home for the loan's entire duration and interest rates are already low, utilizing your tax refund to buy down your mortgage can be a wise financial move.

Establish an Emergency Fund

Every homeowner should prioritize having a financial safety net for unforeseen circumstances. Ideally, this emergency fund should encompass several months' worth of expenses, including mortgage payments. Consider utilizing your tax refund to establish a new emergency savings account or bolster an existing one. Doing so will shield you from potential financial challenges arising from unexpected expenses, such as significant home repairs, job loss, or illness. When deciding where to store your emergency fund, it's advisable to maintain a separate account rather than commingling it with other funds. The objective is to keep these funds easily accessible while discouraging impulsive utilization when unnecessary. High-yield savings accounts, money market accounts, or traditional savings accounts are suitable options, each with its own advantages and disadvantages.

Allocate Funds for Moving Costs

Regardless of how smoothly your home buying process unfolds or how diligently you've managed your finances, additional moving expenses may arise. Utilize your tax refund to help cover costs such as renting a moving truck, purchasing packing materials, paying utility service deposits, or even showing gratitude to supportive friends and family with pizza. These examples represent only a fraction of the ways your tax refund can assist you in realizing your homeownership aspirations. If you have any inquiries regarding how to allocate your tax refund towards your homeownership goals or any other aspect of the home buying process, CrossCountry Mortgage is dedicated to offering guidance every step of the way.