When it comes to buying a home, one of the most crucial financial factors for any buyer is the down payment. For many, this sum represents years of savings and is often the largest hurdle in the homebuying process. However, for existing homeowners, the ability to put more money down on their next property is often a game changer, thanks to a powerful tool: equity.

Home equity—essentially the difference between the current market value of your home and the remaining mortgage balance—has been growing at a staggering rate in recent years. This growth in equity offers significant advantages to current homeowners looking to upgrade or move, providing a financial boost that wasn’t as readily available in years past.

According to recent data from Redfin, the typical down payment for U.S. homebuyers now sits at $67,500, reflecting a nearly 15% increase compared to last year and marking the highest median down payment on record. This impressive figure is not just a result of savings, but of the rising equity in homes across the country, offering many homeowners the chance to maximize their purchasing power.

Let’s break down why equity is allowing so many current homeowners to put more money down, and explore the benefits of making a larger down payment when you’re buying your next home.

The Power of Equity: How It Works
Home prices have skyrocketed over the past several years, leading to an unprecedented rise in equity for homeowners. To put it simply, the longer you’ve owned your home, the more likely it is that its value has significantly appreciated, giving you a healthy chunk of equity. If you’ve been in your home for several years, there’s a good chance you’re sitting on a substantial amount of untapped wealth.

When you sell your home, the proceeds can be used to cover the down payment for your next purchase. Unlike first-time homebuyers who may need to rely on personal savings or other sources of financing, repeat buyers can leverage the equity built up in their current home to make a larger down payment on their next property.

For instance, let’s say you purchased a home five years ago for $300,000 with a 10% down payment. Over time, as the value of your home has increased to $400,000, and you’ve paid down your mortgage, you could now have over $150,000 in equity. This equity can be rolled into the down payment on your next home, helping you to buy a more expensive property, lower your mortgage amount, or reduce your monthly payments.

Why Homeowners Are Opting for Larger Down Payments
While many loan programs allow buyers to put down as little as 3%, or even 0%, an increasing number of current homeowners are choosing to make larger down payments. And there’s a good reason for that—putting down more money upfront can lead to significant financial perks.

Let’s dive into why making a bigger down payment could be a game changer for your financial future.

1. Borrow Less, Save More
One of the most immediate benefits of a larger down payment is that it allows you to borrow less. When you’re able to put more money down, you reduce the total loan amount, which directly impacts the interest you’ll pay over the life of the mortgage.

Let’s consider a simple example: if you put 20% down on a $400,000 home, you’ll only need to borrow $320,000. However, if you only put 10% down, you’ll need to borrow $360,000. That extra $40,000 borrowed means you’ll be paying more interest over the years—potentially thousands of dollars more. By borrowing less upfront, you can save significantly in the long run.

2. Potential for a Lower Mortgage Rate
A larger down payment can also help you secure a lower mortgage rate. Why? Because when you’re able to put down a significant amount of money, it signals to your lender that you’re a lower credit risk. A larger down payment means you have more skin in the game, and lenders generally view this as a sign of financial stability.

In turn, they may offer you a more favorable interest rate. Even a slight decrease in your mortgage rate can make a significant difference in your total interest paid over the life of the loan. This is why many savvy homebuyers prioritize putting down as much as they can comfortably afford.

3. Lower Monthly Mortgage Payments
A smaller loan balance doesn’t just save you money on interest—it also lowers your monthly mortgage payments. Since your loan amount is smaller, the principal and interest portion of your mortgage payment will be lower, providing some relief to your monthly budget.

This lower payment can give you more financial flexibility, allowing you to save more, invest in home improvements, or simply enjoy a bit of breathing room each month. In a time when inflation is pushing up costs in other areas, having a lower monthly payment can be a significant relief.

4. Avoid Private Mortgage Insurance (PMI)
Another key benefit of a larger down payment is the ability to avoid Private Mortgage Insurance (PMI). PMI is an insurance policy that lenders require if you put down less than 20% of the home’s purchase price. It protects the lender in case you default on the loan, but it adds an extra cost to your monthly payments—sometimes hundreds of dollars per month, depending on the size of your loan.

By putting down at least 20%, you can skip PMI altogether. This can make a significant difference in your overall housing costs, freeing up more of your budget for other priorities. According to Freddie Mac:

“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%.”

For many buyers, avoiding PMI is one of the primary motivations for making a larger down payment.

Rising Equity, Rising Opportunity
As equity reaches new heights for homeowners across the country, the opportunity to use that equity toward a larger down payment is growing as well. This is especially important in today’s housing market, where affordability is a concern for many buyers.

The current market presents a unique window of opportunity for existing homeowners. With home prices having appreciated significantly over the past few years, many are in a stronger financial position than ever before. The combination of high equity and low mortgage rates has created a favorable environment for those looking to upgrade or move to a new location.

However, it’s important to remember that every homeowner’s situation is different. While a larger down payment can offer considerable benefits, it’s not the right move for everyone. It’s essential to carefully consider your financial goals, your current savings, and how much equity you’ve built up before making any decisions.

Conclusion: Leverage Your Equity for a Bigger, Better Purchase
Down payments are reaching record highs, and it’s not just because buyers are saving more—it’s largely due to the increasing equity homeowners have at their disposal. For those looking to buy their next home, this equity can be a powerful tool, enabling them to make larger down payments, reduce their loan amounts, and enjoy the long-term benefits of lower interest rates, smaller monthly payments, and the avoidance of PMI.

If you’re thinking about selling your home and making your next move, now might be the perfect time to leverage your equity and increase your buying power. Reach out to a trusted real estate agent to explore your options, assess how much equity you have, and discuss how you can maximize it to get the most value out of your next home purchase. The opportunity to turn your home’s rising value into long-term financial savings is one you won’t want to miss!