Your Current Home Can Help You Buy Your Next One
If you already own a home, you may have a resource that can help with your next purchase: the equity in your current house.
When you sell, you can use that equity toward the down payment on your next home. That is why homeowners are often able to put more money down when they move.
A larger down payment can mean borrowing less, potentially getting a lower mortgage rate and having a smaller monthly payment. It may also help you avoid private mortgage insurance, or PMI.
But putting more down is not a requirement for every buyer. The useful question is not simply how much you can put down. It is how different down payment amounts could affect your next mortgage and your budget.
Why Equity Can Make a Larger Down Payment Possible
The original article highlighted a significant increase in home prices over a five-year period. Those gains helped build equity for existing homeowners, giving many sellers more money to apply toward their next purchase.
It also cited a Redfin report in which the typical down payment for U.S. homebuyers reached $67,500. That was nearly 15% higher than the preceding year and a record at the time of that report.
Those figures are a historical snapshot, not a description of what every buyer should expect. The underlying point is the same: equity gains can put homeowners in a position to make larger down payments when they sell and move.
If affordability has been holding you back, that is worth exploring. Rather than thinking only about the money you have set aside, look at how the equity from selling your current home could contribute to your next purchase.
You Do Not Have to Make a Large Down Payment
Before looking at the benefits, keep this in mind: a large down payment is not the only path to buying a home.
There are loan programs that allow down payments as low as 3%, and others that offer 0% down. That does not mean either option is available to every buyer, so ask which programs fit your situation.
The goal is to compare your options, not assume that the biggest possible down payment is automatically the right choice. If you have equity to use, understanding what it changes can help you make a more informed decision.
Four Benefits of Putting More Money Down
1. You Borrow Less and Can Pay Less Interest
When you put more money toward the purchase upfront, you do not need to borrow as much for that same home.
With other loan terms held equal, a smaller loan means less interest paid over the life of the mortgage. That is the long-term benefit of using equity to reduce your borrowing.
Instead of looking only at the down payment amount, ask to compare the total interest for different loan amounts. Seeing those options side by side can make the trade-off easier to understand.
The practical question is: how much would using more of your equity reduce your borrowing, and what would that mean over the life of the loan?
2. You Could Qualify for a Lower Mortgage Rate
A larger down payment can signal financial stability and lower credit risk to a lender.
The original article also points to your credit score and your ability to repay the loan. When a lender is more confident in your financial position, it may be willing to offer a lower mortgage rate.
A bigger down payment does not guarantee a lower rate. Treat it as a possibility to evaluate, not a result to count on before reviewing your options.
Ask whether increasing your down payment would change the rate offered for your situation. If it does, that could add to the savings from borrowing less.
3. Your Monthly Mortgage Payment Could Be Lower
Using equity for a larger down payment may also reduce your monthly mortgage payment.
That can make your next home more affordable and give your budget more breathing room. For a homeowner concerned about the payment on a different house, this is an important part of the comparison.
Ask to see monthly payment estimates using different down payment amounts for the same purchase. That keeps the conversation focused on what putting more down actually changes.
Then consider which payment you would feel comfortable carrying. A larger down payment is useful when its benefits line up with your priorities, not just because the upfront number is bigger.
4. You May Be Able to Avoid PMI
The original article highlights another potential benefit: putting down 20% or more can allow you to avoid private mortgage insurance on a conventional mortgage.
Freddie Mac explains that PMI protects the lender if you are unable to pay your mortgage. It is not the same as homeowners insurance.
In the monthly-payment arrangement described in the original article, PMI is an added fee included in the mortgage payment when the down payment is below 20%.
Avoiding that expense means one less monthly cost. Ask whether PMI applies to the loan you are considering and how a larger down payment would affect it.
Compare the Options Before You Decide
Your equity can be a useful part of your next home purchase. The benefits are connected: putting more down reduces borrowing, may improve your rate, may lower your payment and could help you avoid PMI.
Start by talking with a trusted real estate agent about your current home's equity. Then ask for mortgage comparisons showing how different down payments could affect your next purchase.
Take the next step: reach out to Ed Parcaut, NMLS 235384, to discuss how using your equity could fit your next mortgage and your budget.
