5 Ways to Turn Your Tax Refund into a New Home

Blog posted On February 02, 2023

Tax season is the time of year that most Americans look forward to because they are expecting a refund from Uncle Sam. It may be easy to start daydreaming about a new car, a new wardrobe, or shiny new electronics, but if your goal is to become a homeowner this year, there are several ways that you can leverage your refund to reach your goal and start building wealth.

Here are 5 ways that you can use your tax refund to purchase a home:

  1. Save for a Down Payment

Saving for a down payment is one of the biggest hurdles to homeownership. Using your refund can help you save up that final amount or jumpstart your savings so you can reach your goal quicker than expected. You can also search for low down payment loan options and down payment assistance programs to help you bridge the gap.

  1. Pay for Closing Costs

The down payment is not the only thing that you need to account for when saving for a home. Closing costs are something that a lot of home buyers forget about, and they can average anywhere between 1%-3% of the purchase price, which can be a large chunk of money. In the current market, sellers are agreeing to pay a portion of the buyer’s closing costs to close the deal but using your refund could help with the remaining amount.

  1. Buy Down the Interest Rate

High-interest rates have kept many home buyers on the sidelines as they wait for rates to drop. You can use your refund to help buy down the rate and lower your monthly mortgage payment, making it more affordable for you to buy this year and take advantage of the current market.

  1. Pay Down Debt

If you have tried to apply for a home loan and found out that you need to pay down high-interest debt to be able to get approved, your tax refund can help you tackle your debt. This can in return raise your credit score making it that much easier to get approved for a home loan.

  1. Savings Buffer After Moving

Are you nervous about your savings being depleted after buying a home? Your tax refund can be a good buffer to start replenishing your savings and have a cushion for any home maintenance problems that come up after moving in.

For tax advice, please consult a tax professional.

Source: FreddieMac®