If you are thinking about selling your house, affordability may be the reason you hesitate. You want to move, but you also want to understand how you would pay for your next home.
Before you decide to stay put, take a closer look at your home equity. It could give you more options than you realize.
The starting point is simple: understand what equity is, find out how much you may have, and consider how it could help with your next purchase. You do not have to make the selling decision before you explore those questions.
What Is Home Equity?
Bankrate explains that home equity is the difference between your home's value and the amount you still owe on your mortgage. It represents the paid-off portion of your home.
Think of it as a simple equation:
Your home's value minus your remaining mortgage balance equals your home equity.
You begin with a certain amount of equity when you make a down payment to buy your home. From there, equity can build as you pay down your mortgage and as your home's value increases.
Those are two different parts of the same equation. Paying down the mortgage reduces what you owe. An increase in your home's value raises the other side of the calculation. Both can contribute to more equity.
You May Have More Equity Than You Think
Home prices have risen sharply, which means your home's value, and your equity, may have increased as well. If you have not looked closely at your equity, you may be overlooking a resource that could help you move.
For context, CoreLogic has reported that the average U.S. homeowner with a mortgage has more than $300,000 in equity.
Data cited from the Census and ATTOM also showed that over two-thirds of homeowners had either completely paid off their mortgages or had at least 50% equity. Put another way, roughly 70% had a substantial amount of equity in their homes.
These reported figures describe homeowners broadly. The question for your move is more personal: how much equity do you have in your own home?
Return to the basic equation rather than assuming the national average describes your situation. You need to understand your home's value and what you still owe on its mortgage.
Two Ways Equity Could Support Your Next Purchase
After you sell your house, you can use your equity to help buy your next home. Depending on how much equity you have and the home you want to buy, that could mean purchasing without a mortgage or making a larger down payment.
These are options to explore, not outcomes to assume. Start with your equity, then consider how it lines up with your next purchase.
1. You May Be Able to Buy With Cash
If you have lived in your home for a long time, you might have enough equity to buy your next home without taking out a loan.
If that is the case, you would not need to borrow money for the purchase or worry about the mortgage rate on that home. Buying without a mortgage also means avoiding mortgage interest.
Investopedia notes that paying cash may be worth considering in a competitive housing market or when you want to save money on mortgage interest. It could also help you close a deal and compete against other buyers.
The important word is could. Having equity does not automatically mean a cash purchase is within reach. The practical question is whether your equity would be enough for the next home you want.
Ask yourself:
- How much equity might I have available after selling?
- What home would I want to buy next?
- Could my equity support that purchase without a mortgage?
2. You Could Make a Larger Down Payment
You do not have to buy entirely with cash for your equity to be useful. You could put it toward the down payment on your next home.
A larger down payment means you would not need to borrow as much money. That is another way your existing home could help support your move.
The Mortgage Reports explains that borrowers who put down more money typically receive better interest rates from lenders. A larger down payment lowers the lender's risk because the borrower starts with more equity in the home.
That does not promise a particular rate. It does give you a reason to discuss how different down payment amounts could fit your next purchase.
Rather than asking only whether you can buy with cash, also ask how much of a down payment your equity could support and how much you would still need to borrow.
How to Find Out How Much Equity You Have
To understand your equity, ask a real estate agent you trust for a Professional Equity Assessment Report, or PEAR.
Make the purpose of that conversation clear. You are considering a sale and want to understand how your equity could help with your next home.
Keep these questions in front of you:
- What is my home's value?
- How much do I still owe on my mortgage?
- What does that difference tell me about my equity?
- Could that equity help me buy with cash or make a larger down payment?
You are not trying to make every decision at once. You are gathering the information needed to see your options more clearly.
Start With Your Equity, Then Explore Your Move
Affordability concerns can make selling feel difficult. Your home equity could be an important part of the decision, whether it helps you avoid a mortgage or reduces what you need to borrow.
Your next step is to ask a trusted local real estate agent for a PEAR. Then reach out to Ed Parcaut to talk through how your equity and down payment options could fit your next home purchase.
