Your Tax Refund Can Improve Home Buying Options

If you are hoping to buy a home this year, there is something you should know about your tax refund. Use it wisely and it can help make your mortgage terms better (score you a slightly lower interest rate) or help you look like a more serious buyer to home sellers (by increasing your down payment), perhaps take the bite out of closing costs, or maybe cover your moving expenses.

So if you are planning to blow that tax refund on a new TV or a small vacation, you might want to reconsider what it might mean to you when buying a home. Here are just a few ways to make that refund work to your advantage.

• Boost your credit score, and perhaps get a better mortgage interest rate. It is recommended that the debt amassed on each of your credit cards be no more than 30 percent of the card’s limit. If you are above that 30 percent, even on one card, it affects your credit score. So paying down a card with less available credit on it can increase your credit score by several points. The better your credit score, the better your mortgage options and easier it is to qualify for a loan.
  
  
• Put it into your down payment savings. The larger your down payment the more serious your offer appears to sellers. So, if they are faced with another competitive offer, they are more likely to take the offer that looks likes it is solid, serious, and credit worthy (so the lending is not likely to fall through and leave them without a buyer). Simply put, it makes your offer seem more reliable and attractive. Also, the more you put down, the less you have to borrow (and qualify to borrow).
  
  
• Save it for closing costs. These add up. This is what is brought to closing, typically by you-the buyer, and includes loan origination fees, mortgage points, title insurance, appraisal, escrow deposit, fees for running a credit report, and other closing costs.
  
  
• Put the refund aside in savings to cover your moving costs: Even if you are planning on moving yourself, it costs money to move. There is packing materials (boxes, tape, bubble wrap, and labels) to buy. There are truck rental fees, time off from work, filling the truck’s gas tank, and take-out meals to buy until you get settled. Often getting your utilities turned on or hooked up costs money for installation, or a deposit ahead of the regular billing cycle. Don’t forget about making new/spare keys and replacing things that were broken during the move.

It is challenging to accept that a tax refund that has not arrived yet is already spent. Perhaps you normally treat it like found money, focusing on the instant gratification of buying something special. But, what is more special than being able to buy a home? Slate that refund for home ownership and improve your home buying options- or at least cover some of the costs.