For millions of Americans, taxes can be a real pain – but getting that refund, when all is said and done, can be a sweet treat.
According to data from CNN and the IRS, roughly 80% of US taxpayers receive a refund, with the average federal refund clocking in around $3000. That’s a pretty significant chunk of change to have deposited into your account overnight – and lots of people have big dreams for that annual payout, whether it’s taking a vacation, saving up for a major purchase, or helping to pay off their debts.
Ultimately, the best use for your tax refund will come down to your unique personal and financial situation. With that said, one tried-and-true way to spend your refund is to put it into your home.
If you’re interested in how to best spend your refund on your current property, or invest in your next one, here are a few ideas worth considering:
Make Some Home Improvements
With a refund check in hand (or, let’s be honest, direct-deposited into your bank account), the possibilities can seem endless. For many people, this windfall is screaming to be put toward home improvement projects and upgrades, large and small.
Putting your tax return dollars towards your home can be a great idea – if you’re realistic about your budget and you have a clear goal in mind.
For instance, it helps to be firm about how much you’re actually willing to spend on home improvements and upgrades. In many cases, home improvement costs can start to pile up and spiral out of control, despite a homeowner’s best intentions.
With that in mind, take some time to look into what home improvements you can confidently tackle, with the amount your tax refund. To get started, CNN Money has a great guide on small projects that you can start and finish for the amount of a refund check, whether you’re getting back $100 or $3000. We’ve also got some ideas to get you thinking, including these 7 updates you can add to your home for less than $1000 apiece.
If you’re looking to make some major changes to your home, it might also help to look into this year’s "Cost Vs. Value Report." While it’s far from perfect, this annual analysis is a great way to determine the average return on investment for common home projects. Leading the way this year in terms of ROI are garage door replacements, deck additions, and minor kitchen remodels.
Of course, it’s also important to take on projects that matter to you in the here and now – whether that means repainting a room or taking major steps toward making your house greener and more eco-friendly. The refund is yours – the choice should be, too!
Put the Money Toward Your Mortgage
Monthly mortgage payments are the biggest financial responsibilities for many households. For some homeowners, a tax refund can be a great way to get a better grasp on this long-term expense.
For instance, homeowners may want to consider pre-paying their mortgage if they’re in a relatively stable financial situation, but wish to reduce the amount of interest they’ll pay for the life of the loan.
In some cases, making payments toward the principal of your mortgage early on can mean paying significantly less in interest over time, allowing you to build equity – and fully own your home – faster. Making pre-payments may also allow homeowners eliminate their private mortgage insurance faster, which can get rid of an annoying recurring cost sooner, rather than later.
Homeowners may also consider reaching out to a lender to refinance their loan to take advantage of current interest rates, using their refund to help cover closing costs and other refinancing fees. This may allow you to be able to make smaller monthly payments for the remainder of your mortgage term.
Of course, it’s important to recognize that these options aren’t for everyone! In some cases, for instance, homeowners may have loan agreements that allow the lender to actually penalize the borrower for making prepayments greater than a certain amount. Ultimately, you may wish to sit down with your family members, your financial advisor, and perhaps even a representative from your mortgage lender before you decide to spend your tax refund this way.
Save Up for Your Next Down Payment
If you’re looking ahead to the future, picture this: Your tax refund can be a great way to put money toward the down payment on your next home!
If your return puts a few thousand dollars directly in your pocket, that could go a long way toward a down payment – particularly when you consider that there are plenty of down payment resources and financing options out there. In fact, as we’ve noted before, you likely won’t need a 15% down payment to purchase a home; by some metrics, one in five borrowers put down less than 10%, with many paying as little as 3-5% out of pocket.
With that being said, remember that everyone’s financial situation and personal needs are unique. It may also serve your dreams of buying a home to pay down other debts, such as your credit card or student loans. Improving your credit score and your overall financial health can go a long way toward streamlining the homebuying process down the road.
How are you planning to spend your tax return this year? Whether you’re looking for a referral for a great service provider, expert advice from a broker, or a partner in buying or selling property, the Real Group RE team is here to help! Drop us a line today to get the conversation started!
