If you’re looking to make big moves in the housing market this year, your tax refund could be a game-changer. Whether you’re buying a new home, refinancing your current mortgage, or paying down existing debt, here are 8 smart ways to use your tax refund to enhance your financial position and improve your homeownership experience:

1. Refinance Your Mortgage

If mortgage rates are favorable, refinancing could save you money over the long term. You might choose to use your tax refund to cover the closing costs of refinancing rather than rolling those costs into your new loan.  This strategy might lead to a lower interest rate, reduced monthly payments, or even a shorter loan term. It’s an excellent option if you’re looking to lower your monthly mortgage payments or pay off your home faster. Talk to several mortgage professionals to see if any have competitive rates.

2. Make a Larger Down Payment on a New Home

A larger down payment means less money to borrow, which can lower your monthly mortgage payments and potentially help you secure a better interest rate. If you’re planning to buy a new home, using your tax refund for your down payment can help you get into a home more quickly and with better loan terms.

3. Pay Down Existing Debt to Improve Your Credit Score

A higher credit score can help you secure better terms on your mortgage or refinance. Consider using part of your tax refund to pay down high-interest debt, such as credit cards or personal loans. Reducing your overall debt-to-income ratio can improve your credit score and increase your chances of getting a more favorable loan rate.

4. Cover Closing Costs on a Home Purchase

When purchasing a new home, closing costs can add up quickly. Your tax refund can be used to cover these expenses, making your home purchase process smoother and less stressful. Closing costs typically include fees for inspections, appraisals, loan origination, and title insurance, and they can range from 2-5% of the home’s purchase price.

5. Make Improvements Before Moving Into a New Home

If you’re purchasing a fixer-upper, your tax refund can help you cover the costs of initial improvements. Whether it’s a fresh coat of paint, replacing old appliances, or fixing up the yard, this investment can help you settle in more comfortably and increase the value of your new property.

6. Save for Future Home Maintenance

It’s important to set aside funds for home maintenance, especially if you’re a new homeowner. Use your tax refund to start a savings account dedicated to maintenance costs. Whether it’s for a new HVAC system, a paint job, or roof repairs, having a financial cushion for future home needs ensures you’re always prepared.

7. Pay Off Your Mortgage Faster

If you’re in a stable financial position, using your tax refund to make an extra mortgage payment can help you pay off your loan faster. By reducing the principal balance, you’ll pay less interest over the life of the loan and potentially shorten the loan term, which can lead to long-term savings.  Be sure to consult with your mortgage servicer to make sure you apply any extra payments correctly for maximum results.

8. Consider a Home Equity Loan for Renovations

If your home has increased in value or you’ve built equity, you may consider using your tax refund as part of a larger home equity loan or line of credit for renovations. This option can provide you with the funds you need to complete home improvement projects while taking advantage of the equity you’ve built in your home.

Perhaps you’d rather hold on to that tax refund for a little cushion/rainy day fund but you still want to tackle some repairs or renovations.  If your home has increased in value or you’ve built equity, a home equity loan or line of credit might be a great option.  With a home equity loan or line of credit, you can take advantage of the equity you’ve built in your home to borrow funds typically at a much lower rate than using a credit card – and all while you keep your tax refund available for some peace of mind.

Final Thoughts

Whether you’re looking to get into a new home, or simply to improve the home you’re in, a tax return can provide impetus to make that space closer to the home of your dreams. Consult with several lenders who work in your area to see who has the most favorable choices for you, and let them know you’re willing to use that tax return as leverage for better options.