How Using Your Equity for a Bigger Down Payment Can Save You Money

As a homeowner, you have a significant advantage when buying your next home—your home equity. The equity you've built over the years can be a powerful tool to make a larger down payment on your next property. With home equity at record highs, many homeowners are leveraging this to increase their buying power, lower their mortgage costs, and boost their financial stability. Here’s how using your equity can make a major impact when purchasing your next home.

What Is Home Equity and How Can You Use It?

Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. Over the last five years, home prices have soared, giving homeowners significant equity growth. When you sell your house, you can apply that equity toward a down payment on your next property, potentially increasing the size of your down payment and providing long-term financial benefits.

According to the latest data from Redfin, the typical U.S. homebuyer’s down payment is now $67,500—15% more than last year. This upward trend reflects homeowners’ ability to use their growing equity when purchasing their next home.

4 Key Benefits of Using Your Equity for a Bigger Down Payment

1. Borrow Less, Save More: By making a larger down payment using your home equity, you reduce the amount you need to borrow. This means less interest paid over the life of your loan, resulting in significant long-term savings. The less you owe, the less interest accrues, keeping more money in your pocket.

2. Get a Lower Mortgage Rate: Lenders often reward larger down payments with lower mortgage rates. A bigger down payment shows financial stability and reduces the lender’s risk, which can help you secure a lower rate. Even a small reduction in your mortgage rate can lead to thousands of dollars saved over the life of your loan.

3. Lower Monthly Payments: A higher down payment means a smaller mortgage, which directly reduces your monthly mortgage payments. This can make your new home more affordable and give you more flexibility in your budget for other expenses or investments.

4. Avoid Private Mortgage Insurance (PMI): One of the biggest perks of a larger down payment (20% or more) is the ability to skip PMI. PMI is an extra monthly fee added to your mortgage if your down payment is less than 20%. By putting down more, you eliminate this cost, saving you hundreds—or even thousands—of dollars per year.

   
   

Bottom Line

If you're a homeowner considering selling your current property, your equity can provide a significant boost when buying your next home. A larger down payment not only lowers your overall borrowing but also helps you secure a better mortgage rate and avoid extra costs like PMI.

Ready to leverage your home equity for your next purchase? Let’s work together to determine your home’s current value and how much equity you can use to maximize your down payment. Reach out today!

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This article does not constitute financial advice. Always consult with a financial advisor or mortgage professional to discuss your unique situation before making decisions regarding your home equity or down payment options.