When it comes to safeguarding your assets and ensuring the security of your loved ones, few things...
It’s tax season, and you may be juggling how to use that big refund to help finance your upcoming home purchase.
Should you use it towards a down payment? Or instead pay down some credit card debt? Each person’s situation is different, so evaluate what is best for you based on the following.
Pay off debt - Lenders require a debt to income ratio of less than 50% (the lower the better), so if you owe a significant amount on high interest credit cards, reducing this debt could be your best strategy. This also has the advantage of raising your credit score as your total credit utilization will decrease.
Saving for the down payment - If your debt-to-income ratio is in good shape, you may breathing room to instead consider the following local housing market factors:
- You have room in your budget for mortgage payments
- You want to put down 20% or more to avoid PMI
- You want to lock in an interest rate before it rises
Of course there are other ways to use your tax refund for housing costs.
For example, your tax refund could be the basis of your emergency fund, something every home owner needs. If your refund will not cover the full down payment, you could instead use it to cover closing fees or to buy down PMI points.
Some questions to ask yourself when considering which path to take:
What is my current amount of debt?
Do I struggle financially because of my debt?
If I didn’t have this refund, how much time would it take to lower my debt-to-income ratio?
What is my tolerance level for interest rates?
Do I want to put down enough to avoid PMI?
Ultimately it’s your call, so take a good look at your finances and reach out to friends and family for advice if necessary. And of course, once you’ve made your decision reach out to a qualified realtor to move forward with your home purchase.
Ed Justen -DRE: 02221512 - Affiliated with Keller Williams. All advice and information given on this blog is sourced from publicly available websites and common knowledge. Got questions? Click here to book 30-minute meeting with me.
