Recently, many buyers who already own homes are making larger down payments when purchasing a new home. This is because they can use the equity gained from selling their current home towards the down payment on their next property. With home values reaching all-time highs, down payment amounts are also increasing.
What is the Average Down Payment for U.S. Homebuyers?
According to the latest data from Redfin, the average down payment for U.S. homebuyers is $67,500, which is about a 15% increase from last year, marking the highest level on record.
Why Equity Enables a Larger Down Payment
In the past five years, home prices have risen significantly, giving many homeowners a substantial increase in equity. By selling their current home and using this equity, they can make a larger down payment on their next property. This can be a great opportunity for those who were previously concerned about their ability to afford a new home.
However, it’s important to note that a large down payment is not always required. There are loan programs available that allow for down payments as low as 3% or even 0%. Nevertheless, many homeowners still choose to make larger down payments because of the key benefits it provides.
The Key Benefits of a Larger Down Payment
1. Lower Loan Amount and Long-Term Savings
A larger down payment reduces the loan amount, leading to lower interest payments and significant savings over time.
2. Access to Lower Mortgage Rates
A larger down payment demonstrates financial stability to lenders. In turn, they are more likely to offer a lower mortgage rate, saving even more money in the long run.
3. Lower Monthly Payments
With a larger down payment, not only is the loan amount smaller, but the monthly mortgage payments are also reduced, allowing for more flexibility in your monthly budget.
4. Avoid PMI (Private Mortgage Insurance)
By making a down payment of 20% or more, you can avoid PMI, an additional cost for buyers with smaller down payments that protects the lender. Avoiding PMI reduces your monthly expenses.
Conclusion
The recent increase in home equity has provided many homeowners with the opportunity to make larger down payments. If you’re planning to sell your current home and buy another, consult with a trusted real estate professional. They can help you assess your equity and determine how to maximize your purchasing power in today’s market.
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