Using Your Tax Refund for a Down Payment

Recently GO Banking Rates put out some interesting information in their survey on how Americans spend their tax return. This was a very relevant topic because one thing that comes to mind in reference to potential homebuyers is the always-elusive down payment. With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in. The average tax refund was $2,860 for most Americans last year. Based on that refund approximately five percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already. Some good information can be found in the age groups who would invest and how likely they were to invest.

The survey states that of those between the ages of 18-34, six percent would use their tax refund to make a purchase of a car, home etc.  Among those who are in the age range of 35-44, nine percent were likely to make an investment in a car or home etc. However, those ages 45-54 only planned to use one percent of their tax refund to make an investment of a car, home etc. That makes the 18-44 group the most likely to invest and possibly take advantage of using their tax refund to partake of the American dream. The younger generation is still burdened with debt while the older generation is in a better position to save and invest.

Let us take a look at the data from NAR’s 2017 Home Buyer and Seller Generational Trends:

• First-time buyers made up 35 percent of all homebuyers, an increase over last year’s near all-time low of 32 percent.
• Sixty-six percent of buyers 36 years and younger were first-time buyers, followed by buyers 37 to 51 years at 26 percent. (First time home buyers group would use between six and nine percent to invest) (Second group 37-51 years would use 31%-41% of their tax return to put into savings)
• At 34 percent, buyers 36 years and younger continue to be the largest generational group of homebuyers with a median of 31 years old.
• Home buyers between the ages of 37 and 51 were reported to have the highest household incomes among any other generation at $106,600, followed by buyers between 51 and 60 that had an income at $93,800 (down from $100,200).

With higher incomes and a tax refund of approximately $2,860, those who are most likely to purchase may actually be in good shape financially when it comes to being a future homeowner. While some may not have planned to use all or part of that $2,860 this year, next year is still a good strategy to plan ahead to use that refund or part of it for that down payment. We can see at least 5 percent is thinking of how to invest their money and home ownership is a means of developing wealth.

Charts are from Go Banking Rates’ survey