Did you know that homeowners typically have the chance to put more money down when purchasing their next home? Once they sell their current house, they can use the equity they've built up towards the down payment on their new home. This trend is contributing to an increase in both home equity and the median down payment amounts.

The newest data from Redfin shows that the average down payment for homebuyers in the U.S. is now $67,500. That's almost 15% higher than last year, marking the highest amount ever recorded.

Equity plays a key role in making this happen. In the last five years, home prices have risen quite a bit, which means many current homeowners, like yourself, have seen a substantial increase in equity. When you decide to sell your house and move, you can use that equity to make a larger down payment on your new home. This is a significant opportunity, especially if you’ve been worried about affordability.

You don't need to worry about making a large down payment to purchase your next home. There are loan programs available that allow you to put down as little as 3% or even 0%. However, many current homeowners are choosing to make larger down payments, and that’s for some good reasons. Putting more money down can offer significant benefits.

Why a Bigger Down Payment Can Be a Game Changer

1. You’ll take out a smaller loan and end up saving more over time.

When you tap into your equity for a larger down payment on your next home, you'll be able to borrow less. The more you can reduce your loan amount, the less interest you'll pay over the years. That means more savings for you in the long run.

2. You might be able to secure a lower mortgage rate.

Putting down a bigger down payment tells your lender that you're financially secure and not a big credit risk. The more trust they have in your credit score and your ability to repay the loan, the better mortgage rate they're likely to offer you. This ultimately increases your savings.

3. Your monthly payments might be reduced.

A larger down payment not only lowers the amount you need to borrow, but it can also lead to smaller monthly mortgage payments. This can make your new home more affordable and provide some extra flexibility in your budget.

4. You have the option to avoid Private Mortgage Insurance (PMI).

If you can make a down payment of 20% or more, you can skip the Private Mortgage Insurance (PMI). This is an extra expense that many buyers face when their down payment isn’t as substantial. Freddie Mac explains it this way:

““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 is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%.”
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— Freddie Mac

Not having to pay PMI means you'll have one less monthly expense to think about, which is a nice perk.

Bottom Line

Down payments are reaching all-time highs, mainly because homeowners have seen significant equity gains, allowing them to contribute more upfront.

If you're considering selling your home and making a move, let's team up to determine your current home equity. This information can really enhance your buying power in the current market.