Are you considering a move but concerned about the affordability of buying your next home? There’s good news for homeowners: thanks to increased home equity, many are able to put down more money on their next purchase than ever before, which can make a big difference in affordability and overall savings.
According to recent data from Redfin, the typical down payment for U.S. homebuyers has reached an all-time high of $67,500—about 15% higher than last year’s average. This jump in down payments isn’t just a random trend; it’s fueled by substantial increases in home equity, which current homeowners can use to strengthen their buying power. Here’s why and how equity is a game changer in today’s housing market.
The Equity Advantage: Why It’s Possible to Put Down More
Home prices have increased steadily over the last five years, leading to significant equity growth for current homeowners. So when you decide to sell your home, you have a powerful financial resource at your disposal: the equity built up in your property. Using that equity to boost your down payment on a new home offers several advantages, whether you’re upsizing, downsizing, or relocating.
While it’s true you don’t have to make a big down payment—many programs let you start with as little as 3%, or even 0% in some cases—many homeowners are opting to put down more because of the clear financial benefits it can bring. Here’s a closer look at why a larger down payment can be a major advantage for your next home purchase.
The Benefits of a Larger Down Payment
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You’ll Borrow Less and Save More Over Time
Using equity for a bigger down payment means borrowing a smaller amount for your new home. This not only reduces your monthly mortgage payment but also minimizes the interest you’ll pay over the life of the loan. Lower loan interest can mean thousands in savings over the years, keeping more of your hard-earned money where it belongs—in your wallet.
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Better Chance for a Lower Mortgage Rate
Lenders see larger down payments as a sign of financial stability, reducing your perceived credit risk. When your lender is confident in your ability to repay, they’re often willing to offer a lower mortgage rate. And with a lower interest rate, your long-term savings increase significantly, reducing your monthly payments even further.
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Lower Monthly Payments for Greater Budget Flexibility
A bigger down payment means a smaller loan balance, which typically results in a lower monthly mortgage payment. With reduced monthly expenses, you’ll have more flexibility in your budget—whether that’s for saving, investing, or simply enjoying your new home.
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Skip Private Mortgage Insurance (PMI)
A down payment of 20% or more often allows buyers to avoid Private Mortgage Insurance (PMI). PMI is typically required when a buyer’s down payment is below 20%, and it’s designed to protect the lender in case of default. By avoiding PMI, you eliminate an additional cost, leaving you with lower monthly payments and fewer fees to think about. As Freddie Mac explains:
“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’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment of less than 20%.”
How to Determine Your Home Equity and Buying Power
If you’re ready to see how much equity you’ve built and how it can work to your advantage, connecting with a real estate agent is the first step. An experienced local agent, like Shane Andersen at Brookings Home Team, can provide a detailed equity estimate and help you understand the options available for maximizing your buying power. This way, you can make a strategic and informed move in today’s housing market, whether it’s within Brookings or the surrounding areas.
Bottom Line
Thanks to recent gains in home equity, many homeowners are in a great position to make larger down payments on their next homes. A larger down payment can help reduce borrowing costs, potentially secure a better mortgage rate, lower your monthly payments, and even eliminate the need for PMI.
If you’re thinking of selling your home in Brookings or the nearby area, let’s talk about how your equity can enhance your buying power. Reach out to Shane Andersen at Brookings Home Team, and together, we’ll make sure your next move is a smart one. #HomeEquity #BrookingsRealEstate #Homeownership
Posted by Shane Andersen on
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