How Using Your Home Equity for a Bigger Down Payment Can Work to Your Advantage

For many homeowners, the opportunity to make a larger down payment on their next home arises when they sell their current property. By tapping into the equity they’ve built up in their existing home, they can put more money toward their new down payment. With home equity reaching new highs, it’s no surprise that average down payments are also on the rise.

Recent data reveals that the average down payment for U.S. homebuyers is now $67,500—a nearly 15% increase compared to the previous year, marking the highest level ever recorded.

So, how does equity make this possible? Over the past five years, rising home prices have boosted equity for homeowners, giving them a significant advantage when it comes time to sell. By using this equity toward a larger down payment on your next home, you could improve your purchasing power and address any concerns about affordability.

While it’s important to note that you don’t have to make a large down payment—there are loan programs that allow for as little as 3%, or even 0%, down—many current homeowners are opting to put down more because of the numerous benefits it offers.

Why a Bigger Down Payment Can Be a Game-Changer

• You’ll Borrow Less and Save More in the Long Run
  Using your home equity for a larger down payment means you’ll borrow less. This translates to paying less interest over the life of the loan, ultimately saving you money in the long term.

• You Could Secure a Lower Mortgage Rate
  A larger down payment demonstrates to lenders that you’re financially stable and present a lower risk. This could result in a lower mortgage rate, further enhancing your savings.

• Your Monthly Payments May Be Lower
  With a larger down payment, your loan amount will be smaller, which could lead to lower monthly mortgage payments. This can make your new home more affordable and provide greater flexibility in your budget.

• You Can Avoid Private Mortgage Insurance (PMI)
  When you put down 20% or more, you can avoid Private Mortgage Insurance (PMI), a monthly cost that typically applies if your down payment is less than 20%. Not having to pay PMI means one less expense to worry about each month.

Bottom Line

Thanks to recent gains in home equity, many homeowners find themselves in a strong position to make larger down payments on their next home.

If you’re considering selling your current home and upgrading to a new one, working with an experienced real estate agent can help you assess your equity and how it can increase your buying power in today’s market.