Did you know? Homeowners can often make a larger down payment on their next home by using the equity from selling their current house. With home equity at an all-time high, the median down payment has increased as well.
Here’s how equity plays a role: Over the past five years, rising home prices have significantly increased the equity of current homeowners. When you sell your home, you can use that equity to make a larger down payment on your next property. This can be a game-changer, especially if you’re concerned about affordability.
It’s important to note that you’re not required to make a large down payment when purchasing your next home—there are loan programs available that allow as little as 3%, or even 0% down. However, many homeowners are choosing to put more down because it offers significant benefits.
How a Larger Down Payment Can Make a Big Difference
1. Borrow Less Now, Save More Over Time
Using your equity for a larger down payment means borrowing less for your new home. With a smaller loan, you’ll pay less in interest over time, saving you money in the long run.
2. You May Secure a Lower Mortgage Rate
A larger down payment demonstrates to your lender that you’re financially stable and pose less risk. The more confidence they have in your creditworthiness and repayment ability, the lower the mortgage rate they’re likely to offer, leading to greater savings for you.
3. Your Monthly Payments Could Be Reduced
A larger down payment not only reduces the amount you need to borrow but can also lower your monthly mortgage payments, making your next home more affordable and providing extra flexibility in your budget.
4. You Can Avoid Private Mortgage Insurance (PMI)
If you can put down 20% or more, you can bypass Private Mortgage Insurance (PMI), an extra cost that many buyers face when their down payment is smaller. According to Freddie Mac:
“For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage. It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%.”
Avoiding PMI means one less monthly expense to manage, which is a great added benefit.
Key Takeaway
Down payments are hitting record levels, mainly due to recent equity gains enabling homeowners to contribute more upfront.
If you’re considering selling your home and moving, contact a
Benson & Mangold agent to determine your current home equity and explore how it can enhance your buying power in today’s market.
