Using Tax Money on a New Home
When many people hear the words tax time it usually comes with a negative feeling, but if you are getting a refund this time of year can seem a little bit rewarding or like an end-of-the-year bonus.
If you are receiving a refund of a few hundred dollars or are lucky enough to receive several thousand you are probably contemplating what you might do with that money and what would be the best use for it. Some people ask if it might be a good use to put the money towards the purchase of their next home.
This is an especially helpful idea if you are planning to purchase your first home and looking for ways to save for a down payment on a mortgage. Using a tax refund as a portion of a down payment can be a very helpful means of saving up this large sum of money more quickly.
How much money can you get and how much money will you need for a new home?
According to the IRS, the average refund for 2021 was $2,775 for taxpayers across the country. A tax refund of this amount can go a long way towards a down payment on a home, especially if you are using a loan that requires a lesser down payment like an FHA-insured loan. Some loans require as little as 3% of the home purchase price for the entire down payment.
The median price of a home in southern Maryland is about $340,000. 3% of this median home price is $10,224. That is quite a large sum of money, but a tax return of a couple, or almost three thousand dollars can get you well on your way to having the money for a down payment. Of course, other loans may require a higher percentage of money down.
A tax return may not be a complete means of funding a down payment, but it is a great use of your tax dollars. Set it aside in a separate account earning interest towards someday making one of the best investments you can make.
Related: 3 Ways NOT To Use Your Home Equity
Some of the smartest uses of your tax refund money
Often when it comes to receiving a tax return after filing for the year many people are tempted to splurge on something frivolous and fun. While this is OK, it’s not necessarily the best use of making your tax money work for you.
One of the first pieces of advice a financial expert will give in the best use of your tax money is to pay off any debts that you may have, especially those that have large interest rates like credit card debt. Another top use of this money, according to financial experts and advisors, is to invest the money into an account for an emergency fund.
If you have these items in place, then the next category that financial experts say is a great use of tax refund dollars is in the real estate area. It is a great idea to put this money aside for needed home repairs or repairs that may increase the value of your home. Investing in some home repairs and upgrades is a very good way to make your money work for you.
And of course, it is also advised that you could put this money into your account to help boost savings for the down payment of a home. While a tax return may not entirely pay for your down payment, it can be a significant chunk of the large sum of money you are looking for.
For more information on purchasing a home in southern Maryland, including areas like Calvert County, Saint Mary’s County, and Charles County, please contact us anytime.