Tax Day has come and gone, but while tax season isn’t on most people’s list of “favorite day of the year”, there’s a light at the end of the tunnel: your tax refund! The average refund in 2023 was $2,753, and with that kind of windfall, a tropical getaway might seem tempting. But before you jump on a plane, let’s explore how you can leverage your tax refund. A down payment for a first-time homebuyer, or long-term goals like financial freedom and building generational wealth!

Can I Use my Tax Refund for a Down Payment?

Are you dreaming of homeownership? Using your tax refund for a home purchase could lead to several advantages when owning your first home! Here are some benefits to a larger down payment on your loan:

• Lower Interest Rate: A larger down payment can qualify a first-time homebuyer for a more favorable interest rate on your mortgage.
• Smoother Pre-Approval Process: A bigger down payment strengthens your financial standing, with less “risk” for a lender to consider, this can make the pre-approval process smoother.
• Avoiding PMI: With a down payment of at least 20% of the home’s value, you will avoid private mortgage insurance (PMI), which adds to your monthly mortgage payment.
• Lower monthly payment: This one might be a no-brainer, but a larger down payment means a smaller loan amount. Smaller loan amount equals smaller monthly payment!

Related: Down-payment assistance programs can help first-time homebuyers get started and increase your down payment!

How Much do I Need for a Down Payment on my First Home?

Down payment requirements vary by the type of loan you want to have. Lower down payment doesn’t always mean a better loan program; there are multiple different factors to decide which loan program is right for you. The best mortgage for a first-time homebuyer is the loan that you’re most qualified for. That will depend on several factors, including your debt-to-income ratio, credit score, and yes…down payment.

We take all of these factors into consideration and help you strategize between your options and choose the right one to fit your current and future goals.

Mortgage Types and Minimum Down Payments

 

 

Related: Check out our mortgage calculators to do the down payment math yourself!

It’s easy to see how a first-time homebuyer can use a tax refund for a down payment and boost their homebuying strategy, but what about people that already own a home? Other than using the funds for home renovations, how can you use your refund to set yourself up for a better future?

Can I Pay Down Principal or Refi with a Tax refund?

We understand the allure of a vacation, but here’s the thing: by putting your tax refund towards your mortgage, you’re essentially doing two things at once: saving money on interest payments in the long run and building equity in your home faster.

Your tax refund may also be able to help you pay fees associated with refinancing to save you money by:

• Lowering your interest rate
• Shortening your loan term (from 30yr to 15yr) 
• Removing private mortgage insurance (PMI) that may have been required if your down payment wasn’t 20% or more of the cost of your home.

If you’ve decided to use your tax refund on your existing mortgage, there are a few ways to go about it:

1. Applying Tax Refund to Principal

A lump-sum payment directly to your principal balance, shortens your loan term, builds equity, and ultimately saves you on interest. The more you pay down the principal, the more interest you save.

Keep in mind:

• Ensure the payment goes towards your principal, not just a regular payment (principal + interest). 
• Check for prepayment penalties – some mortgages have them for early large payments. Review your loan terms and talk to your lender if needed.
• Some lenders might offer “loan recasting,” which recalculates your remaining loan term with the lower principal balance, potentially reducing your monthly payments.

If you’re looking for options to lower your monthly payments specifically, refinancing might be a good fit if rates have lowered since you first bought your home.

2. Using a Tax Refund for Refinancing Fees

Refinancing your mortgage means replacing your existing loan with a new one, potentially with a lower interest rate, better terms, or you could take cash out for projects or major life changes. Here’s where your tax refund can come in handy – it can help cover the refinancing fees, including closing costs and appraisals.

Is refinancing a good option for me?

• Lower Interest Rates: Perhaps interest rates have dropped since you first took out your mortgage, offering an opportunity to save.
• Improved Credit Score: If your credit score has improved significantly since the last time you bought a home, you might qualify for a lower interest rate.
• Debt Reduction: Have you paid off other debts since buying your home? A lower debt-to-income ratio can improve your eligibility for a better interest rate.

Related: How Important is Credit Score When Buying a Home?

How much does a refinance cost?

While refinancing can save you money in the long run, there are upfront costs involved that you should consider. The Mortgage Reports estimates closing costs to range between 2-6% of your loan amount.

Here are some situations where refinancing might not be the best move for you:

• Recently Closed Loan: Many lenders and loan programs have restrictions on how soon you can refinance after taking out a new mortgage. For almost everyone, you’ll want to wait 180 days before refinancing after your most recent loan began.
• Minimal Interest Rate Drop: Aim for a rate reduction of at least 1.5-2% to make the refinancing process worthwhile compared to the cost.
• Short-Term Ownership: If you plan to sell your home soon, refinancing might not make financial sense.
• Longer Loan Term: Since a refinance is a new loan on the same property, you’ll be starting your loan term over again. A longer loan term might seem appealing for lower monthly payments, but it ultimately means paying more interest overall.

Not sure if refinancing is right for you? That’s why we’re here! Our team can do a complete cost analysis for you before you start the process, making sure you’re confident in your decision before taking the first step.

Boost Next Year’s Tax Refund

Let’s say your tax refund this year wasn’t quite enough to make a huge dent on your homeownership goals today. Don’t worry, there are still ways to optimize your tax situation for next year’s return, potentially putting more money back in your pocket to fuel your homeownership dreams.

Here are some key strategies to consider:

Tax Credits for Homeowners

• Mortgage Credit Certificates (MCCs): These state-issued tax credits can be a game-changer, allowing you to claim a portion of your annual mortgage interest as a federal tax credit, effectively lowering your monthly payments.

Reach out to us to learn more about MCCs and eligibility requirements in your area!

Homeownership Tax Deductions

• Mortgage Interest: You can typically deduct your mortgage interest payments, up to a certain limit depending on your loan amount and filing status.
• Mortgage Points: If you paid upfront points to lower your interest rate, you might be able to deduct them as well, subject to specific IRS qualifications.
• Property Taxes: The property taxes you pay on your home are generally deductible. If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet. 
• Home Office Expenses: If you dedicate a specific space in your home exclusively for work purposes, you might be eligible to deduct a portion of your related expenses like utilities and internet.
• Find out more here: The IRS published a great resource for homeowners in 2023 regarding what you can and cannot deduct, MCC credit and other information.  

Keeping good records of your mortgage-related expenses is crucial. This includes your loan documents, receipts for points paid, and documentation of any home improvements you make.

It’s important to note that tax laws can be complex, and eligibility for deductions and credits can vary depending on your specific circumstances. Consulting with a tax professional is always recommended to ensure you’re taking advantage of all the benefits available to you and remaining compliant with federal tax law. We can help you explore these options, or get you in contact with a great Tax Advisor.

In Conclusion

By implementing these strategies and working with a trusted loan officer, you can turn your tax refund into a springboard for achieving your homeownership dreams. We’re here to guide you through every step of the journey, from maximizing your tax refund to navigating the mortgage process.

Get a no-cost pre-approval and explore down payment options for first-time homebuyers – click the Apply Now button above!

 

 

* NFM Lending is not a Financial Advisor, Tax Advisor or Credit Repair Company. You should consult with a Financial Advisor, Tax Advisor or Credit Repair Company to learn more. The pre-approval may be issued before or after a home is found. A pre-approval is an initial verification that the buyer has the income and assets to afford a home up to a certain amount. This means we have pulled credit, collected documents, verified assets, submitted the file to processing and underwriting, ordered verification of rent and employment, completed an analysis of credit, debt ratio and assets, and issued the pre-approval. The pre-approval is contingent upon no changes to financials and property approval/appraisal.

Note: This blog was originally published in March 2014 and has been updated.

Not many people like filing their taxes, but there is a bright spot to completing all those forms: getting that sweet, sweet refund. You can use the money any way you’d like, but why not put it towards having a more financially stable future? Here are some great ways you can get the most out of your tax refund.

Whenever you come into extra money, it’s always a wise decision to pay off any existing debt you may have. Reducing your debt will help improve your credit score, which in turn will make it easier for you to be approved for a mortgage, car loan, or even a job. If you already own a home, put some of the extra cash towards paying off your mortgage. Applying extra payments toward to your debts now will allow you to save money going forward, because you’ll be paying down the principal and any interest that has accumulated. Having less debt not only gives you more financial freedom, but also more peace of mind.

Buying a home involves more than the cost of the actual house, and two such fees you will need to consider are down payment and closing costs. While it might not be necessary to have a 20% down payment anymore, you should still try to save at least 3-5%, and closing costs are typically 2-5% of the home price. Depending on the price of the home you want, this can be a sizable amount of money. If you put your refund towards your house fund and continue to add to it, you’ll soon save enough to cover all expenses of buying a house.

Another practical use for your refund is to finance home repairs or improvements. Most households have at least one feature that needs to be fixed or updated, and you’ll increase your home’s livability by making those needed repairs. Maintaining the upkeep of your home and making improvements can add to your home’s equity. The cost of the upgrade could even be tax deductible; you should speak with a tax preparer to see what you’re qualified to deduct. If it comes time to sell your home, it will only benefit you to already have everything in good shape.

It may be tempting to blow your refund check on a huge TV or an extravagant dinner, but consider investing in your financial future instead. By spending your refund on things that can make positive and lasting changes to your life, you can make your money work for you!

If you have any questions about using your tax return to purchase a home or for home improvements, contact one of our licensed Mortgage Loan Originators. If you are ready to begin the home buying process, click here to get started!

NFM Lending is not a Financial Adviser or Tax Consultant.  Please make sure to consult your own Financial Adviser or Tax Consultant regarding the use of your personal tax refund.

Now that tax season is over, you may be wondering what to do with your tax return. A great way to put your tax return to good use is to invest in home renovations that you may have been putting off. Here are several ways you can get the most out of your tax return and home renovation projects.

Preventative Maintenance
If your house has any safety hazards, address these first. Check your home for anything that could lead to a falling accident, such as broken handrails or cracked walkways. Test your electrical outlets, check your gutters and downspouts, and look for any wear and tear on your water pipes in the kitchen, bathrooms, and laundry room. If you haven’t inspected your roof recently, consider having an inspection done. It costs a few hundred dollars, and can save you thousands in repairs later on.

Renovations under $500
If you’re looking to keep your expenses under $500, consider some of these inexpensive home renovations.

• Update Your Front Door – You might be surprised by the difference new hardware and paint can make. Installing a new doorbell or lighting can cost as little as $100 or less. A fresh coat of paint and a new doormat are other cost-effective ways to update your front door’s look and improve your curb appeal.
• Replace Your Toilets – Not only will a new toilet make your bathroom look newer, but it can save you money in the long run. Newer toilets use about 1.2 gallons of water, while toilets installed before 1995 can use as much as 6 gallons. Replacing a toilet can cost about $100-$200.
• Invest in a Surge Protector – A power surge or any similar malfunction can cause thousands of dollars worth of damage. Protect your electronics by having an electrician install a surge protector for about $300.

Renovations under $1,000
If you have a $1,000 budget, try these home renovations.

• Remodel your kitchen – $1,000 can go a long way in your kitchen, especially if you take the DIY approach. Painting your own kitchen will cost you about $150, depending on the size of the kitchen. Refurbishing your cabinets is a cost-effective alternative to installing new ones; a professional can sand, prime, and paint your cabinets for about $550, and it costs even less to do it yourself. Click here for more inexpensive kitchen remodeling tips.
• Replace Your Washing Machine – A new high-efficiency washing machine can save you money on your water and heating bills. Energy Star-certified washing machines can save you as much as $100 annually on your utility bill, and run for about $600-$1,000.
• Install a Fireplace – That fireplace you’ve always wanted isn’t as much of a splurge as you might think. Ventless fireplaces offer all the benefits of a standard fireplace without a chimney. An electric fireplace insert costs about $500-$1,500, while an alcohol-gel fireplace costs about $270-$470.

Renovations under $2,500
If you’re looking for a more dramatic change, check out some of these renovations under $2,500.

• Replace Bathroom/Kitchen Flooring – If your bathroom or kitchen floor is starting to look worn or cracked, installing new tile flooring is a great way to update your room’s look. It costs about $2,000, depending on the type of tile and the size of the room.
• Install a New Garage Door – Nothing says curb appeal like a new garage door. A typical wood or steel garage door costs between $550-$1,650 including installation, while a double door costs between $800 and $2,500. And if you’re an experienced DIY renovator, you can save money by installing your new garage door(s)
• Paint Your Home’s Interior – Give the inside of your house a mini-makeover with an updated paint job. Since the size of each home varies, it is a good idea to plan out your project and estimate the cost of painting each room before you begin. This article has some good tips on carrying out this type of project. The cost of an interior paint job for an entire house is about $2,000, including paint and supplies.

Spring isn’t just a great time for spring cleaning, but a great time to update and renovate your house. This is especially a good idea if you’re planning to put your house on the market soon. If you’re looking to move or refinance your current home, talk to one of our licensed loan originators today to get started.

If you have just gotten your tax refund or plan to receive one soon you should start thinking of ways to use your money responsibly—or just treat yourself! According to the Internal Revenue Service, the average individual tax refund was $2,651. Here are 8 ways to use your tax refund this year:

1) Save Your Money

You can’t go wrong with putting your tax refund in savings. If you are trying to build your savings, consider putting at least some of this money in your savings account. Are you looking to buy a home soon? Maybe you should put this money toward your down payment.

2) Pay off Debt

Paying off some debt may be the most common way people use their tax refund. If you know you have bills that need to be paid right away, put this money directly toward that.

3) Plan That Trip You’ve Always Wanted

Enjoy a vacation on an island like the Bahamas or take your partner on a romantic getaway to Paris! Everyone deserves to treat themselves occasionally.

4) Upgrade Your Technology

This is the perfect time to splurge! Get that new television for your family room, or a new laptop. Have you had your eyes on one of the larger more advanced cell phones?  Go ahead and purchase it, along with some great accessories. There’s nothing wrong with keeping up with the ever-changing digital times!

5) Donate Your Money

Consider putting some of your money toward a local charity organization. Remember donating your time is just as important as donating your money.

6) Take a Class

Do you wish you knew more about the business world? Try taking a management class at your local community college. You could also express your creative side by taking a cooking or arts and crafts class. You’re never too old to learn new things!

7) Update a Room in Your House

Is your bedroom design starting to bore you? Splurge on a fresh coat of paint, new linens, and new artwork. If you want to give your kitchen a facelift, try replacing the cabinet doors. A little bit of money can go a long way toward making cosmetic changes in a room.

8) Dedicate Yourself to Fitness

Join a gym, and put money aside to cover the cost of a year’s membership—this way you won’t have to worry how you’re going to pay for it in the future. If you’d rather workout at home, consider buying a treadmill or an elliptical machine.

Hopefully you consider using your tax refund money in one of these ways or even use a combination of these tips. Whichever one you choose, make sure you’re using your refund in a way that makes you comfortable.