Tax season can be stressful but also bring opportunity if planned out smartly. If you are expecting to pay, make sure you have enough saved each month to pay your taxes on time and get it out of the way! If you are getting a refund, how are you going to spend or save that money? Having a plan can prevent us from wasting the opportunity to apply those funds to the right area to improve our credit score, invest in our future by buying a home, or saving for it for that ultimate emergency. So this week I thought I would share my top 5 Smartest Uses of Tax Refunds for folks who want to either sell their current house and move up into that forever home or are first-time home buyers jumping into the housing market.
- Your refund won’t be enough to redo your kitchen or bathroom, but it can certainly pay for any costs or fees for a refinance. Allowing your home to pay for its upkeep or updating through refinancing is smart. Investing the equity back into your house usually increases its value, makes it easier to sell in the future, and you can improve your quality of life in the home.
- You can use the extra cash for smaller updates like adding a backsplash, painting a room, replacing your bathroom sink, updating your faucets, installing a programmable thermostat or sprucing up your yard. Look at your curb appeal and see what improvements can be made.
- Increase your credit score! Use your refund to pay off a balance with an 18% interest rate is like earning 18% on your investments — an incredibly valuable use of the money. The higher the credit score, the lower the rate you qualify for on the largest purchase you make, your home mortgage.
- Beef up your home insurance. Use some of your refund money to protect your home. For about $50, you can add $10,000 to $20,000 in sewage backup coverage — which usually isn’t part of a standard home owner’s policy. You can pay to trim your trees to help protect against some of the most common types of storm damage and put together a disaster kit. If you got the bare minimum initially when you got your mortgage, look at your policy to make sure you have the coverage you are comfortable with.
- With the low mortgage rates and low or no down payment options available, that tax refund could be invested in a new home. The FHA Home Loan has options as low as 3.5% down. The USDA Loan for rural areas may have a no down payment option, and, of course, the VA Home Loan can be a 100% financing option as well.
Planning ahead so that you don’t spend the money impulsively or unwisely could to help get that first home, or perhaps that dream home.