Did you know? Homeowners are often able to make a larger down payment when buying their next home. This is because, once they sell, they can use the equity from their current property toward their new down payment. As home equity has reached new heights, so has the median down payment.
According to recent data, the typical down payment for U.S. homebuyers is $67,500—an increase of nearly 15% compared to last year, marking the highest on record.
Why does equity make this possible? Over the past five years, home prices have risen significantly, giving current homeowners a big boost in equity. When you sell, you can apply that equity toward a larger down payment on your next home. This is a major benefit, especially if you’ve had concerns about affordability.
It’s important to note that you don’t have to make a large down payment to buy your next home—there are loan programs that allow for as little as 3%, or even 0% down. However, many current homeowners are choosing to put more money down because of the advantages it offers.
Why a Bigger Down Payment Can Be a Game Changer
- You’ll Borrow Less and Save More Long-Term By using your equity for a bigger down payment, you’ll need to borrow less. This means paying less interest over the life of your loan, which results in long-term savings.
- You Could Secure a Lower Mortgage Rate A larger down payment signals to lenders that you are financially stable and a lower credit risk. This confidence can lead to a lower mortgage rate, further increasing your savings.
- Your Monthly Payments Could Be Lower With a bigger down payment, your loan amount will be smaller, leading to potentially lower monthly mortgage payments. This can make your home more affordable and provide more flexibility in your budget.
- You Can Avoid Private Mortgage Insurance (PMI) Putting down 20% or more allows you to skip Private Mortgage Insurance (PMI). This added cost typically applies when buyers make a down payment below 20%. Avoiding PMI means one less expense to manage each month.
Bottom Line
With recent gains in home equity, many homeowners are in a strong position to make larger down payments on their next home.
If you’re considering selling your current property and moving, working with a knowledgeable real estate agent can help you understand how much equity you have and how it can enhance your buying power in today’s market.
