As of April 17th, the bulk of the country has filed their federal and state tax returns and is settling up with the government for the 2016 tax year. For a lot of Americans, this means a tax return is “in the mail”. Returns can represent a sizable “windfall” of cash by late spring or early summer, and is often earmarked for a specific kind of purchase.
According to a recent survey by Go Banking Rates, the breakdown of how returns are used looks something like this:
- 41% – Put it into savings
- 38% – Pay off debt
- 11% – Go on a vacation
- 5% – Make a major purchase (car, home, etc.)
- 5% – Splurge on a purchase
“Approximately 5 percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential home buyers if they are not already.”
If you are shopping for a home this year, then using your tax return as a portion of the down payment for your new home may be the right option for you. A down payment can often protract the buying timeline for many first-time home buyers, simply because they often don’t have access to chunks of cash on hand.
This is both a good and bad thing. On one hand, it may keep potential home buyers out of the market, but on the other, the down payment acts as a reality check for home buyers to gauge their seriousness with investing in a home. Your tax return can take a little of the pressure off for gathering funds, while still allowing the “benefit” of the down payment reality check.
Not sure how much you need to put down? The best way to find that out is to meet with a local mortgage lender to assess your current financial and credit scenario. They can walk you through the pro’s and con’s of varying down payment tiers, including:
- Obviously, a larger down payment means you’ll owe less in your monthly mortgage payment.
- The more you put down on your house, the more mortgage loan options you’ll have.
- If you down payment is less than 20% of the asking price on the home, you lender may ask for Private Mortgage Insurance.
Talk to a mortgage professional today to see what you’ll need to put down on your dream home, and when you tax check comes in, get started seeking out your ideal home.