Many people dread tax time, but many others look forward to it because they will be getting a refund. But a large number of those who do get a refund often spend it in short order on things they’ve been wanting all year. But there is a better way, especially when you want to buy your first home. Your tax refund can actually be your ticket to that new home. So let’s see how to use your tax refund to buy your first home in Northern Virginia.
Use It for the Down Payment
IRS statistics reveal that the average tax refund for 2013 was just a hair over $3,000 – which means that a lot of refunds were a lot more than that. And those several thousands of dollars would go a long way toward a down payment so that you could buy your first home. It might even cover the entire 3.5% down payment if you qualify for an FHA loan.
But if you can use your tax refund to pay the standard 20% down, you probably should. With a larger down payment, you won’t have to pay for private mortgage insurance (PMI), and you will have more negotiating leverage. Besides, you’ll get a better interest rate and smaller monthly payments.
If your tax refund this year still doesn’t allow to make a down payment, don’t despair. You can save your refunds for two or three years and then have your down payment without hurting your normal discretionary income and cash flow.
Cover Moving Costs
What it costs to buy your first home in Northern Virginia isn’t the end of your expenses. Many people forget to factor in moving costs, but you can use your tax refund to cover them. Typical moving costs include:
- Buying packing materials like boxes and tape
- Renting a storage unit
- Renting a moving truck or van
- Paying the movers
- Paying utility deposits
- Feeding friends and family who volunteer to help
If, like many of us, you neglected to take these expenses into account, you can make sure they are covered by using your tax refund.
Apply It to Taxes and Insurance
You can also use your tax refund to buy your first home in Northern Virginia by applying it to pesky (and sometimes hefty) expenses like taxes and insurance. Many times, your property taxes and insurance will be rolled into your mortgage, and in that case, you won’t have to worry about paying them. But, then, you have the cash to purchase extra insurance for a bigger safety net.
Put It Toward Closing Costs
Closing costs can often amount to a lot more than people think, particularly when you buy your first home. If you do run into any financial surprises at closing, you can put your tax refund toward those unexpected closing costs. Closing costs typically include:
- Escrow costs
- Title insurance
- Appraisal and inspection fees
- Attorney fees
Depending on your lender and the type of mortgage, many of these costs can be rolled into the monthly mortgage payments – but not always and not all of them. Your tax refund can help you pay for these closing costs when they have to come out of your pocket.
Keep It for an Emergency Fund
When you buy your first home in Northern Virginia, you may not be prepared for all the unexpected expenses that will inevitably arise – most often for maintenance and repairs. And that’s why you should always have an emergency fund on hand. You can hang on to your tax refund to begin building up this needed emergency fund. You simply must have cash on hand for those times when your AC breaks down or you need roof repair after a storm.
Get More Ideas From Your Agent
These, of course, are just some of the ways to use your tax refund to buy your first home in Northern Virginia. Your local real estate agent can provide you with even more ways and ideas. And remember that after you buy your first home, you may get an even bigger tax refund because you can deduct mortgage interest and property taxes.