Maximize Your Tax Refund

Maximize Your Tax Refund: Invest in Your Future Through Real Estate

Tax season often brings a pleasant surprise – a refund. As of February 7, 2025, the IRS reported an average refund amount of $2,065. That is an 18.6% increase from the previous year. Check out the details here.

If you’re contemplating how to make the most of this windfall, consider channeling it into real estate. Continue reading to discover several ways you can maximize your tax refund by investing in real estate.

Building Wealth Through Homeownership

Homeownership is a proven strategy for building wealth. Consider this, median sales price for all the Northwest MLS Housing Market (Washington State), rose to $640,000 in 2024. This is up 6.7% from the year prior. This positive increase reflects steady appreciation over the years.

By investing in property, you not only secure a place to call home but also position yourself to benefit from potential market gains.

Smart Ways to Utilize Your Tax Refund in Real Estate

Boost Your Down Payment

Saving for a down payment is often a significant hurdle for prospective homeowners. While the traditional 20% down payment offers benefits like avoiding private mortgage insurance, it’s not a strict requirement. If 20% seems unattainable you’re not alone. NerdWallet exposed that in 2023, first-time buyers typically put down 8% of the home’s purchase price.

Whether your goal is 20 or 8% your tax refund can bring you closer to this goal. The closer you are to your goal makes homeownership more attainable.

Cover Closing Costs

Closing costs encompass various fees, including loan origination, appraisal, and title insurance, typically ranging from 2% to 5% of the loan amount. For example, you would pay between $10,000 to $25,000 in closing costs in addition to the down payment on a $500,000 home loan.

Allocating your tax refund toward these expenses can ease the financial load at closing, allowing you to preserve other savings.

Purchase Mortgage Points

If current interest rates are a concern, consider using your refund to buy mortgage points. Each point, costing 1% of your loan amount, can reduce your interest rate, leading to substantial savings over time.

This upfront investment can lower your monthly payments and decrease the total interest paid over the life of the loan.

Make Extra Principal Payments

Applying additional funds directly to your mortgage principal can shorten your loan term and reduce the total interest paid. Even small extra payments can have a significant impact over time. Always consult with your lender to ensure there are no prepayment penalties.

Hot tip: Consider making an extra payment every year (perhaps your tax refund) and you could save thousands in interest over the course of the loan. For example, if your monthly mortgage payment is $3,000 and you making one extra payment a year it has the potential to save you $100,000 in interest and could cut 6 years off your mortgage.

Just imagine your future self, lounging in your dream home, sipping a cup of coffee, and thinking, “I’m glad I invested that tax refund wisely!” By making strategic decisions today, you can pave the way for a comfortable and secure tomorrow.

Partner with a Real Estate Professional

Embarking on the real estate journey can be complex. You don’t have to navigate it alone. A knowledgeable real estate agent can provide personalized advice, helping you make informed decisions that align with your financial goals. If you’re ready to explore your options, connect with us today.  Let’s turn your tax refund into a steppingstone toward your dream home.