The Benefits of Using Your Home Equity for a Larger Down Payment

When you sell your current home, you can use the equity you've built to make a larger down payment on your next one, which can have some serious advantages. With home equity reaching new highs, many homeowners are finding themselves in a better position to make a bigger down payment. According to recent data from Redfin, the median down payment for U.S. homebuyers is now $67,500—15% more than last year and the highest on record.

Here’s why tapping into your home equity can be such a game-changer.

How Equity Helps You Make a Bigger Down Payment

In the last five years, home prices have surged, which has significantly boosted equity for homeowners. When you sell your home, you can use that equity to increase the size of your down payment on your next property. This can be a major benefit if you've been concerned about the affordability of buying a new home.

While you can still buy a home with a small down payment—some loan programs allow as little as 3% down—many homeowners choose to make larger down payments because of the long-term financial perks.

The Advantages of Making a Bigger Down Payment

1. Lower Borrowing Costs

The more equity you use for your down payment, the less you'll need to borrow. By borrowing less, you’ll pay less interest over the life of the loan, which can save you money for years to come.

2. Potential for a Lower Mortgage Rate

Lenders see a larger down payment as a sign that you're financially stable, reducing their risk. This can often result in a lower mortgage rate, which adds to your savings over time.

3. Lower Monthly Payments

A bigger down payment can reduce the size of your mortgage, leading to lower monthly payments. This can make your next home more affordable and give you more flexibility in your budget.

4. Avoiding Private Mortgage Insurance (PMI)

If you’re able to put down 20% or more, you can skip paying Private Mortgage Insurance (PMI), which is typically required for smaller down payments. PMI is an extra monthly cost that protects the lender but adds to your expenses. By avoiding it, you can save money each month.

With down payments at record highs, many homeowners are using their equity to boost their purchasing power. If you’re thinking of selling your home and upgrading, a trusted real estate agent can help you understand how much equity you have and how it can work to your advantage in today’s market.