Your Home Equity Could Give You More Buying Power
When you start thinking about buying another home, the down payment is naturally going to be part of the conversation. And while 20% is often mentioned as the standard, it is not a requirement for many buyers.
There are mortgage programs that allow qualified buyers to purchase with considerably less upfront. But homeowners who are selling one property and buying another often have something working in their favor that they did not have the first time around: equity.
That equity may make a larger down payment possible without spending years saving additional cash.
Repeat Buyers Put More Money Down
Data from the National Association of Realtors (NAR) shows the typical repeat buyer makes a 23% down payment when purchasing a home (see graph below):
That is a significant difference from the typical 10% down payment they may have made when purchasing their first home.
The reason many homeowners can make that jump comes down to what has happened during the years they have owned their current property.
As you make mortgage payments, you gradually reduce the amount you owe. At the same time, your home’s value may appreciate. Together, those two factors can build equity.
When you sell your home, that equity can become cash you can use toward your next purchase. And according to NAR data, many repeat buyers use proceeds from the sale of their previous home to help fund their next down payment (see chart below):
First time buyers typically do not have this same source of funds available, which is why their down payments are often smaller.
But if you already own a home, it is worth finding out how much equity you have before deciding what you can afford next. You may have more financial flexibility than you realize.
Why Consider Putting 20% Down?
Putting 20% down is not necessary for every buyer, and keeping some of your equity available for savings, renovations, moving expenses, or other financial goals may make more sense.
But if a larger down payment fits comfortably within your plans, there can be some meaningful advantages.
As Redfin explains, here are four potential benefits:
1. A lower monthly mortgage payment
A larger down payment means borrowing less money. A smaller loan balance can help reduce your monthly principal and interest payment, which may make a new home easier to fit into your budget.
2. Less interest over time
When you finance a smaller amount, there is also less principal accumulating interest throughout the life of the loan. That can make a noticeable difference in your total borrowing costs.
3. The potential to avoid private mortgage insurance
With many conventional mortgages, buyers who put down less than 20% may be required to pay private mortgage insurance, commonly known as PMI. Reaching the 20% mark can typically eliminate that additional monthly expense.
4. A stronger financial position when making an offer
A larger down payment may also give sellers more confidence in your financing. It can signal that you have substantial funds available for the purchase, which may help your offer stand out when competing with other buyers.
Your Equity Could Change the Numbers
The amount you put down should ultimately fit your financial situation and your plans after closing. Putting every available dollar into a home is not always the right move, just as putting down the smallest amount possible is not automatically the best choice.
The important part is knowing what options you actually have.
If you have owned your home for several years, the equity you have accumulated could help you make a larger down payment, reduce the amount you need to finance, and potentially make your next monthly payment more manageable.
Bottom Line
You do not have to put 20% down on your next home. But if the equity from your current property makes it possible, it is worth seeing how the numbers compare.
A trusted lender can help you evaluate different down payment scenarios and determine how each one affects your mortgage. And if you are curious about how much equity you may have available from your current home, let’s talk about what it could mean for your next move.
