Using your tax refund to buy a home? Use your money wisely!
Consider depositing your refund into an account earmarked for your downpayment fund.
Most people dread tax time, but if you’re getting a refund, this time of year can seem like a windfall! If you’re thinking about buying your first home, consider depositing your tax refund into an account earmarked for your down payment.
How much will you get back? And how much will you need for a down payment? According to the IRS, the average refund for a Maryland resident was $2,770 in 2017. That goes a long way toward a down payment, especially if you’re using an FHA loan, since you’ll need just 3.5% of the home price for the down payment. The required down payment on a median-priced home in Maryland, which the National Association of Realtors says was $288,800 in 2018, would be $10,108 with an FHA loan. Don’t forget, we can negotiate to have the home seller kick in to pay costs, too. If you opt for conventional financing, you would need at least 5% down. Here’s a bigger thought… If you’re planning a few years in advance, consider tax refunds as a forced savings account. Just 2 or 3 years’ worth of refunds is a serious way to help fund the down payment for a home purchase.
Still, you’ve got to remember that the best tax refund is no tax refund. Sure, getting a refund feels good, but remember, it was your money to begin with! And you loaned that money to the federal government interest free. I remind buyers that after a home purchase, they should consider having their deductions modified to keep their money in their paycheck every month – not sure how? I’m happy to point you in the right direction, especially since you’ll also be getting more deductions (and more money in your paycheck) from your new-found mortgage interest deductions.