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Getting A Tax Refund? Put It Down on Your First Home

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What are you doing with your tax refund? Are you trying to save up for a home of your own? 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 refund.

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 refund. According to the IRS, the average tax refund 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 refund 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.

 

Up to 20% Homebuyer Assistance in Dayton

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The HomeOwnership Center of Greater Dayton, in partnership with the City of Dayton, announced today that it will support first-time homebuyers purchasing in Dayton with up to 20% of the home’s purchase price in the form of down payment and closing cost assistance.

Having funds for a down payment is often the biggest challenge faced by potential homebuyers. Even with special loan programs designed for first-time buyers, upfront costs can run $5,000 – $9,000 – a daunting figure for those saving a modest amount each month toward the goal of purchasing a home.

Addressing this challenge along with offering an incentive to buy in Dayton, the HomeOwnership Center is increasing the amount of assistance available to qualified low-to-moderate income homebuyers to a maximum of twenty percent of the purchase home’s price, up from ten percent. The increased assistance may mean the reduction or elimination of private mortgage insurance costs and save the homebuyer thousands of dollars over the life of the mortgage. The funds are offered as a 0% deferred second mortgage, which is repaid when the property transfers.

“This program makes it possible for first-time homebuyers to invest in their own future rather than paying rent, which is often higher than a mortgage payment in our market,” says Beth Deutscher, executive director of the HomeOwnership Center. “We also want buyers to be sustainable, rather than spending all of their reserves on the purchase and then not being able to handle repairs and other responsibilities of owning a home.”

The program is funded by City of Dayton HOME dollars, a federal allocation from HUD intended to increase affordable housing opportunities at the community level. Buyers participate in classes and coaching from certified advisors at the HomeOwnership Center as part of the program, aimed at empowering them to make good decisions as they move through the process of purchasing a home.

“With the expansion of the Dayton Homebuyer Assistance Program, we are helping to close the affordability gap for low-to-moderate income families. Placing homeownership within reach for our working families leads to stronger families, stronger neighborhoods, and a stronger Dayton,” said Mayor Nan Whaley.

Have You Saved Enough Money to Buy a Home?

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Do you have enough money for a down payment, for closing costs, and to have an emergency savings fund?

Typical mortgages will require you to have a down payment equal to at least 3% of the home’s purchase price. On the other hand, some specialty mortgage products (such as VA loans and Rural Development Loans) may not require any down payment at all. However, the more money you can put down on your new home, the better off you will be. A low down payment can lead to higher interest rates and requirements for you to have mortgage insurance. Each of these will significantly add to the long term cost of the home. The bottom line? On its own, not having a 20% down payment should not be a stumbling block to buying a home.

You will need more than just a down payment. When you buy your home, you will also need to pay closing costs. Closing costs represent the actual transactional costs of buying a home. Those costs can include loan application fees, taxes, title searches, home inspections, and more.  It is important to understand that closing costs represent actual costs and are not based upon a percentage of the home’s selling price. Closing costs do not have to be covered by the homebuyer. You can negotiate to see if the seller will pay all or a portion of the closing costs. Your lender may also be willing to roll the closing costs into the loan.

You should also have money set aside for an emergency savings fund. It’s pretty rare these days for a lender to require that you have some kind of cash reserves. However, as a homeowner, you will need cash that will allow you to make repairs to the home as they become necessary. When a storm blows a branch through a window or your hot water heater goes out, you are the one that will need to make repairs and replace equipment.

What can you do when you haven’t saved enough money to buy a home?

Recent polls have shown that saving up for a down payment is the largest hurdle for first time homebuyers. Many people don’t understand closing costs or the need to have an emergency savings account. If you are struggling to save the cash required, we might be able to help. The HomeOwnership Center has Down Payment Assistance programs and Financial Fitness classes that can make a real difference to you.

This is the second post in the series, Are You Ready to Buy Your Own Home? You can read the other installments in the series by following these links:

Part One: Is Your Credit History Good Enough to Buy a Home?
Part Two: Have You Saved Enough Money to Buy a Home?
Part Three: Are You Mortgage Ready?
Part Four: Are You Planning to Stay in the Home for the Next 5 to 7 Years?
Part Five: Are You a Realistic Homebuyer?
Part Six: Do You Know Enough About the Homebuying Process?

Use Your Tax Refund to Grow Your Down Payment

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Are you facing a bump on the road to buying your own home? You really want to buy a house or a condo. Your rent is going up faster than your paycheck and you want to invest in your future instead of your land lord’s. But coming up with a down payment is a big obstacle.  Do you feel like you’ve hit a road block?

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. With tax season upon us, now is the perfect time to augment your down payment with 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 between September 15th and December 15th, was $119,905. You could buy that average priced Dayton home with just $3,600 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 2015 was $2,800. 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.

 

Do You Really Need a 20% Down Payment to Buy a Home?

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Conventional wisdom says that you need a 15 or 20 percent down payment to buy a home; otherwise you won’t be approved for a mortgage.  That may have been true twenty years ago, but times have changed and so have the down payment requirements for buying a home. If the hurdle of saving for a big down payment has been keeping you from buying a home of your own, read on and you may find that homeownership is within your reach.

If you don’t need a 20% down payment, how much money should you have? You could get a conventional loan with as little as 3% down. FHA loans are also available with a 3.5% down payment. There are even some specialty programs like VA loans and Rural Development loans from the USDA that don’t require a down payment at all. The take away is that you can buy a home with a much smaller down payment than you might have thought.

For those of you that are paying high rents or student loans, coming up with any down payment at all might be a real struggle. To meet your needs, down payment assistance programs are available in much of the greater Dayton area. These programs do have income limits, but will require you to come out of pocket with very little money of your own.

What about closing costs?

Closing costs are the amount of cash that you will need to pay for closing expenses such as loan processing,  the land surveyor, deed recording, etc. Typical closing costs run in the 2-5% range and are not a set percentage, but the actual cost of the various fees. Unlike the down payment, closing costs don’t have to come from you. You could ask for a credit towards closing costs from the seller or get a cash gift from family or friends. You may even be able to add the closing costs into the mortgage.

Don’t let the lack of a down payment become a barrier to buying a home.

The 20% down payment requirement is the biggest homebuying misconception that we hear at the Home Ownership Center. It’s simply not true. If you have questions about down payments or any other homebuying issues, give us a call at 937.853.1600 or fill out the following form. We are a non-profit resource dedicated to guiding you down the smart path to homeownership.