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The Real Deal
Target tax return $$$ toward a new home
By Chris Trapani
With tax season just behind most Americans, this is the time of year when personal financial reality is most clear.
Since individual personal tax returns or payouts can affect the budding dreams of homeownership this spring home-buying season, it just might be the perfect opportunity to earmark tax return dollars toward the purchase of a new home. Potential homebuyers can take a reality check by outlining down payment options and reviewing a checklist on other possible costs associated with buying a home.
First, most lenders request a down payment of at least 20 percent of the cost of the house. For some people, saving this amount of cash can be difficult, especially if unexpected costs, such as tax payouts, arise. However, homeownership is still possible; several programs allow buyers to make down payments of significantly less than 20 percent of the price of the home. Many first-time homebuyer programs offer from zero to 3 percent down payment options with approved credit. Some zero down first-time homebuyer programs even allow homebuyers to roll in closing costs so that they can go to the closing table without even writing a check.
Particularly relevant for first-time buyers and for those who haven't been in the market for some time is the fact that additional dollars should be saved for an estimated range from 1 to 3 percent of the value of the home for "out of pocket" or additional closing costs. Closing costs vary from city to city and even from home to home. Some examples of approximate national averages include tax services for $85; credit reports for $20; and appraisals for $350. Closing costs can also include fees relating to home inspections, title searches, bank fees, and termite or flood inspections, to name a few.
The mortgage lender requires some of these services and others are legally necessary, depending on where the buyer lives. While not a requirement, extra dollars can be wisely spent if earmarked toward a home warranty that guarantees the appliances and inner workings of a home for the first year it is owned.
Consumers can further evaluate their options in down payments and balance them against some predicted closing costs directly with a mortgage program or their lender. As an alternative to renting, consumers are wise to understand their options, since owning a home would literally and figuratively be a possible tax shelter in and of itself.
Chris Trapani is the manager of Coldwell Banker Northern California's Los Gatos offices.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.
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Los Gatos, California Since 1881
