Those of you who know me or frequent my blog know that I’m a huge proponent of creative ideas and thinking outside the box. I’m also big on ingenuity and finding opportunity – and closings – wherever you can.
Well, tax season is the perfect time for that! While the last part of the year can be slow as many people do not want to move during the holidays and tend to overspend on everything from Christmas presents to Halloween costumes and holiday travel, tax season provides a “windfall” of sorts.
Yes, I’m talking about the trusty, ol’tax refund. We all know it’s coming, yet many of us forget about this “free money,” as it’s often perceived (though it was ours to begin with). This can lead to irresponsible spending as we opt for new wardrobes, upgraded cars, the latest electronic or another vacation. The savvy taxpayers who account for and anticipate this refund each year will likely save it, which is a great strategy – but what if they could do more?
This is where you come in. The average tax refund in 2015 was more than $3,000, according to the IRS. This may not be enough to fully fund a 20 percent down payment on a new home, but you can be darn sure it still goes a long way! And that is just the average refund. Keep in mind many taxpayers will receive substantially more.
This money can be easily put to work, and Finance of America professionals are here to ensure the general public knows it. The period between March and May should be a busy one for you as you communicate the benefits of earmarking that money for potential homeownership.
Whether you’re circling back with potential borrowers who weren’t quite ready to pull the trigger yet, or with personal connections who want to own their own home, but aren’t confident they’ll qualify, now is the time to do some pavement pounding.
Keep the below points in mind as you do:
- There is tons of misconception out there that a borrower can only qualify for a mortgage if they’re able to provide a 20 percent down payment. This is often not the case, and the extra couple thousand dollars from a refund can really alleviate some of that pressure.
- Programs exist at the macro (nationwide) and micro (state/county/city) levels to assist homebuyers. They often involve grants and other forms of assistance that can significantly reduce a down payment. Be sure you’re up to date on the latest ones in your area.
- USDA loans and VA loans (in many cases) require no down payment, allowing the refund to go toward secondary costs or the first mortgage payment.
- Speaking of secondary costs, many potential borrowers budget for the down payment, but not for additional expenses, such as closing costs, moving expenses, or initial home repairs and renovations. This can unfortunately deter some borrowers from even applying for a loan, as they picture the snowball effect of first-time homeownership. These refunds can go a long way toward allaying these fears.
- FHA loans only require a 3.5 percent down payment, while conventional loans may require as little as 3 percent down. A median home price in America right now is about $178,000, which would require a down payment of little more than $5,000 at 3 percent. That refund can cover a large chunk of this expense.
- A refund can go toward outstanding debt, such as student loans or credit card balances, which can make it easier for a borrower to qualify for a loan.
- Paying down balances and debts can also build credit, providing even more positive momentum on the road to homeownership.
- Using a tax refund toward the purchase of a new home ensures a client is investing in his or her future as they attempt to strengthen and diversify their financial portfolio. This is a much better use of this money than squandering it on a one-time experience or shiny new item that will lose its luster – and its value – by the time next tax season rolls around.
- Putting a refund toward a home purchase this year can result in additional tax credits and write-offs next year, which may result in an even larger refund! Though write-offs and refund sizes will vary, this is still a wonderful way to “invest” that money, rather than letting it ride in Vegas or in the markets.
Congratulations! You’re now armed with an detail-oriented, actionable blueprint that allows you to target a large segment of the population – namely, anyone who received a refund this year.
So, what are you waiting for? Take a little time to organize your leads, collect your talking points and communicate, communicate, communicate. Chances are high many people haven’t even thought about what they’ll do with this extra money – or at least, they haven’t committed to doing it. Opening their eyes to the possibility of homeownership may be just the push they need to use this refund responsibly.