Skyrocketing Equity? Here’s How to Use It for a Bigger Down Payment on Your Next Home!
Did you know that homeowners can use the equity in their current property to make a larger down payment on their next home? That’s right!
As home values have risen over the past few years, so has homeowner equity, giving you a valuable tool to purchase another property—whether it’s a second home, an investment property, or a vacation spot.
According to Redfin, the typical down payment for homebuyers in the U.S. is now $67,500—that’s almost 15% higher than last year and the highest on record! A big reason for this is that homeowners are using the equity they’ve built to increase their buying power for new properties.
Here’s how using your equity works. As your home’s value has increased, the equity you’ve built up can be tapped into through options like home equity loans. That equity can then be used toward the down payment on a new property, giving you the opportunity to make a stronger offer or even reduce your monthly mortgage payments.
But here’s the thing: you don’t *have* to make a large down payment. In fact, there are loan programs that allow as little as 3%, or even 0%, down! Still, many homeowners choose to put more down because it comes with some pretty nice benefits.
Why a Bigger Down Payment Is a Smart Move
1. You’ll Borrow Less and Save More Long-Term
By using your equity to make a larger down payment on your new property, you won’t need to borrow as much. Less borrowing means less interest over time, saving you money in the long run.
2. You Could Lock in a Lower Mortgage Rate
A larger down payment shows lenders that you’re financially stable and a lower credit risk, which can help you qualify for a better mortgage rate—saving you even more in the long run.
3. Your Monthly Payments Could Be Lower
Borrowing less also means your monthly mortgage payment may shrink, giving you more wiggle room in your budget.
4. You Can Avoid Private Mortgage Insurance (PMI)
If you can put down at least 20%, you can skip paying PMI, which is an added insurance cost most buyers face with smaller down payments. That’s one less monthly expense to worry about!
Not Selling Yet? You Can Still Use Your Equity
If you’re not ready to sell just yet, but want to tap into your home’s equity, you have options. Home equity loans and home equity lines of credit (HELOCs) let you borrow against the value of your home.
You can use that money for home improvements, consolidating debt, or even as a down payment for a second property—without selling your current home. It’s a great way to make the most of your growing equity!
Bottom Line
With home equity at record highs, homeowners are in a strong position to use that equity to make larger down payments on new properties. It’s a powerful way to make the most of your assets and reach your next financial goal.