Tax Refund/what to do with it question

[04diamond<3]

Hi all....any mortgage brokers, or real estate people out there? We're getting a nice refund this year (first EVER), and I'd like to know which is more important to do....

DH and I found a home that we'd like to buy in 6 months and feels that we should put it in savings to start our house savings fund....I, however, feel that we should use it to pay off some debt in order help out our credit....Any thoughts? My thought process is if we pay off our debt our credit will be better earlier and give us a better pre qualifying mortgage statement....

Also, some dust would be appreciate, I have 3 interviews this week (all in jewelry ) - Thank you!!

 

[kenny]

Paying off CC debt is very good.

BTW, tax refunds are bad because they hold your money all year and don't pay you interest.
Meanwhile you are paying interest on CC debt.
If you increase your withholding exemptions you'll get more of your money every week so you can pay down the CC debt faster.
Number-wise you'll come out ahead.

Actually having to write the largest check that does not result in penalties is best from a financial point of view, even though I realize many people like getting a refund than writing a check even if they lose money overall.
They think of it as a forced saving's account.
That's fine as long as they know the downside too.

 

[amc80]

Is say it depends on how your credit is now. If it's already top tier, save the cash...you'll need it for the house.

 

[Deactivated member 42515]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

 

[SB621]

Paying off CC debt is very good.

BTW, tax refunds are bad because they hold your money all year and don't pay you interest.
Meanwhile you are paying interest on CC debt.
If you increase your withholding exemptions you'll get more of your money every week so you can pay down the CC debt faster.
Number-wise you'll come out ahead.
Actually having to write the largest check that does not result in penalties is best from a financial point of view, even though I realize many people like getting a refund than writing a check even if they lose money overall.
They think of it as a forced saving's account.
That's fine as long as they know the downside too.

This exactly!! Since I started to do my own taxes my accountant(s) have always stressed that a refund is not a good thing. You want to have your taxes be as close to zero as possible so you will have more money throughout the year to pay down debt, invest etc.

 

[Enerchi]

I would use the money to pay down debt. Or put onwards retirement savings if it gives you a future t ax break for next year.

 

[vc10um]

Paying off CC debt is very good.

BTW, tax refunds are bad because they hold your money all year and don't pay you interest.
Meanwhile you are paying interest on CC debt.
If you increase your withholding exemptions you'll get more of your money every week so you can pay down the CC debt faster.
Number-wise you'll come out ahead.
Actually having to write the largest check that does not result in penalties is best from a financial point of view, even though I realize many people like getting a refund than writing a check even if they lose money overall.
They think of it as a forced saving's account.
That's fine as long as they know the downside too.

This exactly!! Since I started to do my own taxes my accountant(s) have always stressed that a refund is not a good thing. You want to have your taxes be as close to zero as possible so you will have more money throughout the year to pay down debt, invest etc.

We're still working on that "as close to zero as possible" thing thanks to getting married, then moving and buying a house, but I can't wait for the day when our tax situation stabilizes and we can say "yes, withhold this amount please" and we end up sending in checks for like $5 to the Feds and to the state!

04diamond, if I were in your shoes, unless you carry a balance on your credit card from month to month, I would put the money in savings for the house. Debt like student loans, so long as you clearly show enough income to pay for them and your future mortgage, is not really looked down upon by a bank looking to offer you a mortgage. And like YT said, some banks require $X in savings before they'll offer you the best interest rates. BUT, if you're carrying CC debt, by all means pay that down first!

 

[chrono]

I would pay off the cc debt first because generally, the interest rate is quite high.

 

[Deactivated member 42515]

Huh... So I guess it's a good thing I sent in $291 to the IRS?

 

[chrono]

$291 is not too bad. When you owe too much, I think IRS tacks on a fee on top of the amount owed.

 

[Deactivated member 42515]

$291 is not too bad. When you owe too much, I think IRS tacks on a fee on top of the amount owed.

This is the first year we have owed such a little amount. It's usually $800-1000.

 

[MichelleCarmen]

You can have some debt and still have excellent credit. My friend use to work as a mortgage broker and found some couple had quite a bit of debt but had such large amounts of additional open/available credit, that their FICO scores were still high. That said, if the debt is CC related, I'd pay that off as it I wouldn't want to buy a home while owing on high-percentage loans. If you have car payments/student loans, then those you consider not paying off if you can afford to pay those & a house payment, plus put $ in savings each month for a household emergency fund.

Overall, I'm just not a fan of debt but I never had student loans...the only other justifiable debt I see are car loans (gotta have a vehicle) and a mortgage. If you owe on any dept store cards, for sure pay those puppies off!

 

[momhappy]

It really depends on your debt. If you have a lot of CC debt, then you are probably wise to try to pay it down. Depending on the amount of your refund, how about putting a small amount in savings (that might inspire you to add more and continue to save) and then put the rest towards your debt?

 

[04diamond<3]

Well, we've decided to split it. We have some debt to pay off but also a car that we're trading next month. The job search is going well, but we're definitely going to have all our debt paid off prior to getting pre approved for the house.

 

[04diamond<3]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

 

[04diamond<3]

You can have some debt and still have excellent credit. My friend use to work as a mortgage broker and found some couple had quite a bit of debt but had such large amounts of additional open/available credit, that their FICO scores were still high. That said, if the debt is CC related, I'd pay that off as it I wouldn't want to buy a home while owing on high-percentage loans. If you have car payments/student loans, then those you consider not paying off if you can afford to pay those & a house payment, plus put $ in savings each month for a household emergency fund.

Overall, I'm just not a fan of debt but I never had student loans...the only other justifiable debt I see are car loans (gotta have a vehicle) and a mortgage. If you owe on any dept store cards, for sure pay those puppies off!

We don't have much cc debt. We only have one cc and it's pretty small. I did incur student loans again this year, but it's also small and I will be continuing my education.

 

[sonnyjane]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

 

[04diamond<3]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

That's good to know. I wonder if our income being significantly higher would change that? Plus, we'll have a low mortgage...would that help?

 

[sonnyjane]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

That's good to know. I wonder if our income being significantly higher would change that? Plus, we'll have a low mortgage...would that help?

Your income does not affect your credit report. I suggest you do a Google search of the different components. Credit scores are based on things like credit history (how old is your longest credit account?), debt to limit ratio (balance of $2,000 but max of $10,000), timeliness of payments, any missed payments, any requests for lines of credit, loans, etc. These things carry different weights and certain actions remain for longer than others. For example, filing for bankruptcy stays for 7 years. If you haven't paid bills and it's been sent to collections, that stays for 7 years. You can find tons of info online

 

[MichelleCarmen]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

That's good to know. I wonder if our income being significantly higher would change that? Plus, we'll have a low mortgage...would that help?

Your income does not affect your credit report. I suggest you do a Google search of the different components. Credit scores are based on things like credit history (how old is your longest credit account?), debt to limit ratio (balance of $2,000 but max of $10,000), timeliness of payments, any missed payments, any requests for lines of credit, loans, etc. These things carry different weights and certain actions remain for longer than others. For example, filing for bankruptcy stays for 7 years. If you haven't paid bills and it's been sent to collections, that stays for 7 years. You can find tons of info online

Yep, you would be shocked at some of the strangest things that can effect getting a house loan. We had decided to refinance our mortgage and I was on the original, but the new bank turned me down. I don't remember my exact FICO - it was between 700-750, but I had overpaid on a medical bill from when my son was born, so that was a VERY old bill, but I had overpaid on it by $7.00 but it showed up as an unpaid debt on my credit report rather than a credit balance. The mortgage co wasn't going to approve me over that and I had to make a bunch of calls/write a letter, etc., to correct my report, but we missed the cutt-off by one or two days and only my DH ended up on the loan because of that. Now, the first mortgage co didn't care, but the second did...so it can often depend upon the company. And, that was over $7.00 and it being a credit report mistake!

Now, our mortgage lender told us he had a couple come in with over $100K in credit card debt and get approved for a home loan because they had tons of additional open credit lines so their overall ratio was low. That was years ago...lenders probably wouldn't approve that now, but I do have a friend who lost her home to foreclosure and then bought another home two years later with no money down. You may just have to shop around for a lender and plan on possibly paying a higher interest rate.

Right now, I would concentrate on making sure your credit report is 100% accurate and start saving for a down payment. Good luck!

 

[sonnyjane]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

That's good to know. I wonder if our income being significantly higher would change that? Plus, we'll have a low mortgage...would that help?

Your income does not affect your credit report. I suggest you do a Google search of the different components. Credit scores are based on things like credit history (how old is your longest credit account?), debt to limit ratio (balance of $2,000 but max of $10,000), timeliness of payments, any missed payments, any requests for lines of credit, loans, etc. These things carry different weights and certain actions remain for longer than others. For example, filing for bankruptcy stays for 7 years. If you haven't paid bills and it's been sent to collections, that stays for 7 years. You can find tons of info online

Yep, you would be shocked at some of the strangest things that can effect getting a house loan. We had decided to refinance our mortgage and I was on the original, but the new bank turned me down. I don't remember my exact FICO - it was between 700-750, but I had overpaid on a medical bill from when my son was born, so that was a VERY old bill, but I had overpaid on it by $7.00 but it showed up as an unpaid debt on my credit report rather than a credit balance. The mortgage co wasn't going to approve me over that and I had to make a bunch of calls/write a letter, etc., to correct my report, but we missed the cutt-off by one or two days and only my DH ended up on the loan because of that. Now, the first mortgage co didn't care, but the second did...so it can often depend upon the company. And, that was over $7.00 and it being a credit report mistake!

Now, our mortgage lender told us he had a couple come in with over $100K in credit card debt and get approved for a home loan because they had tons of additional open credit lines so their overall ratio was low. That was years ago...lenders probably wouldn't approve that now, but I do have a friend who lost her home to foreclosure and then bought another home two years later with no money down. You may just have to shop around for a lender and plan on possibly paying a higher interest rate.

Right now, I would concentrate on making sure your credit report is 100% accurate and start saving for a down payment. Good luck!

I was surprised recently by just HOW drastically some things can affect your credit in a short period of time. I bought a new car last week. DH and I both checked our credit scores prior so that we would be prepared for financing. At the time, I was 824 and DH was 812. To be *safe*, DH requested a $30,000 line of credit through his bank the week before we went shopping so that if we couldn't get a good rate through the dealership, we would just pay with a check. When the dealership ran our credit scores, I was still 824, but DH had dropped to 691!! So requesting that line of credit dropped his score from 812 to 691 in just a week. I was very surprised! Luckily my score was enough to get the good rate.

 

[04diamond<3]

Some banks want you to have a certain amount of money in savings before they give you a low interest loan. Because they want to know that you have more than enough money to live and that you will have plenty of money to pay the mortgage.

Depending on your credit score, I would save the money for your down payment. If your score is on the not so good side, obviously, the best thing to do is pay off some debts and make it better. But if its decent, I say down payment.

Right now, we definitely have bad credit because I've had some large medical bills we haven't been able to pay off with me being out of work. But, it's all looking up so hopefully we can get it all paid off soon and be able to save for the house as well.

Just so you aren't disappointed, the medical bills that haven't been paid will stay on your credit report for several years even after you pay them off. Once missed and reported, there's nothing you can do to improve that portion of your credit report other than wait.

That's good to know. I wonder if our income being significantly higher would change that? Plus, we'll have a low mortgage...would that help?

Your income does not affect your credit report. I suggest you do a Google search of the different components. Credit scores are based on things like credit history (how old is your longest credit account?), debt to limit ratio (balance of $2,000 but max of $10,000), timeliness of payments, any missed payments, any requests for lines of credit, loans, etc. These things carry different weights and certain actions remain for longer than others. For example, filing for bankruptcy stays for 7 years. If you haven't paid bills and it's been sent to collections, that stays for 7 years. You can find tons of info online

Yep, you would be shocked at some of the strangest things that can effect getting a house loan. We had decided to refinance our mortgage and I was on the original, but the new bank turned me down. I don't remember my exact FICO - it was between 700-750, but I had overpaid on a medical bill from when my son was born, so that was a VERY old bill, but I had overpaid on it by $7.00 but it showed up as an unpaid debt on my credit report rather than a credit balance. The mortgage co wasn't going to approve me over that and I had to make a bunch of calls/write a letter, etc., to correct my report, but we missed the cutt-off by one or two days and only my DH ended up on the loan because of that. Now, the first mortgage co didn't care, but the second did...so it can often depend upon the company. And, that was over $7.00 and it being a credit report mistake!

Now, our mortgage lender told us he had a couple come in with over $100K in credit card debt and get approved for a home loan because they had tons of additional open credit lines so their overall ratio was low. That was years ago...lenders probably wouldn't approve that now, but I do have a friend who lost her home to foreclosure and then bought another home two years later with no money down. You may just have to shop around for a lender and plan on possibly paying a higher interest rate.

Right now, I would concentrate on making sure your credit report is 100% accurate and start saving for a down payment. Good luck!

I was surprised recently by just HOW drastically some things can affect your credit in a short period of time. I bought a new car last week. DH and I both checked our credit scores prior so that we would be prepared for financing. At the time, I was 824 and DH was 812. To be *safe*, DH requested a $30,000 line of credit through his bank the week before we went shopping so that if we couldn't get a good rate through the dealership, we would just pay with a check. When the dealership ran our credit scores, I was still 824, but DH had dropped to 691!! So requesting that line of credit dropped his score from 812 to 691 in just a week. I was very surprised! Luckily my score was enough to get the good rate.

Wow!! That's a lot! Our cc debt is less than 5k and I think our medical bills are about the same. School debt from this year is 10k, but I will continue to stay in school for the next 4 or so years. When asking about whether or not it'd matter if our mortgage being lower would help, I didn't mean the credit score but the overall chance of us getting approved. We've gotten pre approved for mortgages about 3 times before and the lender is a family friend. Since then our income has doubled.