Coming up with a down payment for your first home seem like an impossible task?
You’re not alone. The number one problem cited by first-time homebuyers is the difficulty they have saving for a down payment on a new home. It’s not surprising with stagnant wages and high rent. However, this is a perfect season to boost in your down payment. Use your tax return.
Having just a 3% down payment is enough to qualify you for a mortgage. Really. That means you would need $3,000 down for a $100,000 home. According to the real estate website, Trulia, the average home sale price in the Dayton area in 2017 was $115,500. You could buy that average priced Dayton metro area home with just $3,468 down. If you only consider the City of Dayton, your are looking at an average home priced at $56,900 and just $1,707 down. Of course, the more you can put down, the better off you will be in the long run. Higher down payments can lead to better interest rates and potentially avoiding Private Mortgage Insurance (PMI). Both of these would save you many thousands of dollars over the length of the loan.
Now, let’s get back to your tax return. According to the IRS, the average tax return in the spring of 2017 was $3,050. That would make up a serious chunk of your down payment. Of course, not everyone is getting a tax return of that magnitude. However, if you are planning to buy in the next few years, you have time on your side. Only getting a few hundred dollars back from the government this year? Put that money into a separate savings account. Add more to the account every month along with future windfalls, and your down payment will grow quickly.
Before you spend your tax return on something else, ask yourself what are your priorities? Would you rather grow your down payment or buy a new flat screen TV? If your priority is to buy a new home, then take the road towards homeownership; use your tax refund to grow your down payment fund.
Having Enough for a Down Payment May Not Be Your Only Obstacle.
If you’ve been struggling to put together a down payment, you might need to take a closer look at your finances to determine if you really are ready to buy a home. Your new house payment could very well be much lower than your monthly rent. However, a new home also comes with other expenses like homeowner’s insurance, taxes, and home maintenance. It’s wise to go into your new home with an emergency savings that you can use to make unexpected repairs. For instance, when your furnace breaks down, you have to pay for the repairs on your own.
If you want to know if you are ready to buy a home of your own or want someone to review your finances, contact the HomeOwnership Center and we’ll give you our expert advice.