A substantial tax refunds, or even a small tax refund, could buy homes for many Americans. According to FreddieMac, the Internal Revenue Service began accepting tax returns on January 29, and estimates nearly 155 million individual tax returns will be filed for the 2018 tax filing season.
Here are three ways it could bring you closer to home-ownership.
Save for a down payment
One of the biggest barriers to home-ownership is the lack of savings on hand for a down payment. Don’t overestimate the size of the down payment you may need. Your credit history, along with other factors, will dictate how much of your money is needed for a down payment. Many borrowers are permitted to make a down payment of about 5 to 10% — not 20%, which is often the percentage borrowers confuse with the amount of equity needed to avoid Property Mortgage Insurance (“PMI”). For example, Freddie Mac’s 3% down mortgage, known as the Home Possible Advantage®, helps qualified borrowers make a down payment of as little as $6,000 for a $200,000 home.Down payment assistance programs can also be leveraged too fill thecash gap. Get in contact with me about the many programs across the country that can help you save on your down payment and closing costs. In fact, Orange County Government and the City of Orlando offer some programs to qualified borrowers and some are offered based on the location of the home. Check to see what Down Payment Assistance programs you may be eligible for by clicking here.
Pay for closing costs
A home-buyer will typically pay between about 2% and 5% of the home purchase price in closing fees. However, these fees can fluctuate depending on the interest rates, incentives offered, etc. The average for closing costs, by state, can be viewed here and further understand your costs.
Lower your interest rate
You can use your tax refund to pay discount points in order to “buy down” your mortgage interest rate. A “point” equals one percent of the loan. This is commonly used to lock in a lower interest rate on your fixed–rate mortgage. For example, if you are borrowing $100,000, paying one discount point would mean paying $1,000 upfront at closing. Here’s the great part. By having a lower interest rate you may even end up saving more in interest payments over the life of the loan. FreddieMac’s Mortgage Calculator can give you an idea of how paying extra points might lower your rate.