4 ways to use your tax return for homeownership

Tax season is officially over, which means tax returns are hitting bank accounts now. You may be asking yourself how you can use your tax return to make the smartest financial investment for your future. Tax returns are often used to fund a variety of situations, whether it’s paying for a vacation, stashing away emergency funds, buying a new TV, or playing catch up on bills. Yet homeownership may be one of the most fruitful ways to use your tax return.

Homeownership can be an excellent long-term investment, particularly across the Raleigh-Durham metro area. As an example, a study recently showed that homeowners in the Triangle are equity rich, and many in Wake County have properties worth twice as much as they owe on their homes. Furthermore, the Triangle market isn’t expected to slow any time soon, which means homeowners in the area will continue to see massive returns on their investments.

If you’re looking for ways to use your tax return to boost your wealth, here are 4 ways you can use it to your benefit for homeownership.

Most banks require a 20 percent down payment on a home, though the National Association of Realtors reported that number wasn’t always the case in 2021. Last year, the median down payment for buyers was 12 percent, and as low as 6 percent for younger buyers. Still, the more money you can save for a down payment, the better the chances you’ll have to buy a home in the hot Triangle market.

There are many advantages to a higher down payment, including better loan options, lower monthly payments, and savings on private mortgage insurance. Saving money now can put you at an advantage in the long run.

In the current market, you can expect to pay a due diligence fee when you make an offer on a home. This fee is a deal sweetener and will take the home off the market if your offer is accepted while the home goes through appraisal. The great thing is this fee can be used for closing costs once that time comes. The more money you have set aside for due diligence, the better off you’ll be when making an offer on the perfect home for your needs.

If you already own a home, it may be smart to begin looking into renovations or making updates to increase your home’s equity. A small renovation or update to your home can go a long way toward increasing the wealth you have in your home. In fact, investing in an update like solar power can significantly increase the value of your home.

Making one extra payment per year does more than help you pay your mortgage off early. It can also save you thousands of dollars over the life of your loan. If you can dedicate your full tax return to the principal on your mortgage each year, it will go a long way toward helping you increase your wealth in the future, though you’ll want to make sure it’s the smartest investment for your needs. Talk to your loan servicer before you choose to prepay your mortgage to make sure there are no prepayment penalties involved. 

No matter what phase of homeownership you’re in, you can find a smart use for your tax return to increase your wealth. Be sure to talk to your financial advisor for advice on how to make your return work best for you.