First-Time Homebuyer? Your Tax Refund Could Help Open the Door Sooner.

It’s tax season, and you know what that means — a hefty refund might be right around the corner.

You could spend it on a shopping spree, a vacation, or splurge on that designer bag.

Or you could put it aside for a down payment on your first home! Your refund could help you reach your homeownership goals sooner than planned. It could even help you get lower monthly mortgage payments, pay less interest, or shorten your loan term.

If you’re expecting a decent tax return this spring, let’s dive in and learn some ways you can leverage that cash as a first-time buyer.

Put your refund toward your down payment

Your first option is to put your refund toward a down payment. Add it to an interest-earning savings account and watch your balance grow at an even faster rate.

A bigger down payment means a lower loan balance and a lower, more manageable monthly payment. It might also help you avoid paying private monthly insurance (PMI), which is yet another monthly cost. A lower down payment may even lower the rate you’re offered, which means you’ll pay less in interest over the life of the loan. Any way you look at it, putting your refund toward your down payment is a smart move and can mean big savings.

Pay points up front

Paying points is a great way to lower the interest rate on your loan. Mortgage points are a form of prepaid interest that you pay upfront in exchange for a lower interest rate. (It’s sometimes called “buying down” your interest rate.)

If you can use your tax refund to pay one or two percent of your loan balance up front, you could lower your rate significantly. And with a lower interest rate, you’ll have lower monthly payments and pay less interest over time.

Pay off debt

Don’t have perfect credit? Your credit score plays a big role in what mortgage rates you qualify for — and your tax refund could help improve it. Use your refund to pay down existing debts, like credit cards, auto loans, and student loans. Be sure ot start with the higher-interest loans first. Once you’ve paid down some debts and your score has adjusted, you might qualify for a better interest rate on your mortgage.

Make an extra mortgage payment

After you’ve bought a home, use your refund to make an extra mortgage payment or two, if possible. Extra payments lower your loan balance, as well as the interest you pay over the course of the loan. They could even help you pay off your loan sooner, as long as you can commit to an extra payment or two each year.

Put it toward renovations

Not finding the perfect home? Consider a fixer-upper instead. Your tax refund could help cover renovations and updates, allowing you to customize your dream home exactly as you see fit. Just make sure you get the home inspected first. This will allow you to anticipate any big-picture (and big-ticket) repairs that might be needed.

Use it for moving costs

Homebuyers are always thinking of their purchase costs — the listing price, their agent’s commission, the closing costs, and more. But what they often forget to consider is the costs of actually moving into the home. Moving can be expensive — particularly in the busy spring and summer seasons. There are vans to rent, movers to book, boxes and packing supplies to buy, and a whole slew of other costs and expenses. If you’re moving from afar, travel can get costly as well. Your tax refund can put a dent in these costs — or maybe even pay for them entirely.

Spend it on new furniture and decor

Are you buying a home much bigger than your existing rental or apartment? Then you’ll probably need new furniture, decor, and other supplies as well — all of which can get pricey, especially when purchased simultaneously. Consider using your tax refund toward these costs, and give yourself some freedom when it comes time to outfitting your new home.

Start a rainy day fund

Finally, you can simply stow your refund away for a rainy day. As a homeowner, you never know when an appliance might need replacing or a system needs repairing. Having a rainy day fund can help you cover these unexpected costs without eating into your cash flow or hurting your finances too much. It’s also important in the event your property taxes go up or some other unforeseen expense arises.

Get Personalized Advice

Are you hoping to become a first-time homebuyer this year? Then get in touch with an Embrace loan officer today. We’ll advise you how to best use that refund to meet your home buying goals sooner and more affordably.