The Benefits of Using Your Equity To Make a Bigger Down Payment
Did you know? Homeowners are often able to put more money down when they buy their next home. That’s because, once they sell, they can use the equity they have in their current house toward their next down payment. And it’s why as home equity reaches a new height, the median down payment has too.According to the latest data from Redfin, the typical down payment for U.S. homebuyers is $67,500—that’s nearly 15% more than last year, and the highest on record (see graph below): Here’s why equity makes this possible. Over the past five years, home prices have increased significantly, which has led to a big boost in equity for current homeowners like you. When you sell your house and move, you can take the equity that gives you and apply it toward a larger down payment on your new home. That’s a major opportunity, especially if you’ve had concerns about affordability.Now, it’s important to remember you don’t have to make a big down payment to buy your next home—there are loan programs that let you put as little as 3%, or even 0% down. But there’s a reason so many current homeowners are opting to put more money down. That’s because it comes with some serious perks.Why a Bigger Down Payment Can Be a Game Changer 1. You’ll Borrow Less and Save More in the Long RunWhen you use your equity to make a bigger down payment on your next home, you won’t have to borrow as much. And the less you borrow, the less you’ll pay in interest over the life of your loan. That’s money saved in your pocket for years to come.2. You Could Get a Lower Mortgage RateProviding a larger down payment shows your lender you’re more financially stable and not a large credit risk. The more confident your lender is in your credit score and your ability to pay your loan, the lower the mortgage rate they’ll likely be willing to give you. And that amplifies your savings.3. Your Monthly Payments Could Be LowerA bigger down payment doesn’t just help you reduce how much you have to borrow—it also means your monthly mortgage payment may be smaller. That can make your next home more affordable and give you a bit more breathing room in your budget.4. You Can Skip Private Mortgage Insurance (PMI)If you can put down 20% or more, you can avoid Private Mortgage Insurance (PMI), which is an added cost many buyers have to pay if their down payment isn’t as large. Freddie Mac explains it like this:“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%.” Avoiding PMI means you’ll have one less expense to worry about each month, which is a nice bonus. Bottom LineDown payments are at a record high, largely because recent equity gains are putting homeowners in a position to put more money down.If you’re thinking about selling your current house and moving, let’s work together at Aurhomes Group to figure out how much home equity you have right now, and how it can boost your buying power in today’s market.
Why a Condo Could Be Your Perfect First Home
If you’re looking to break into homeownership but the price of single-family homes has you second-guessing, you might want to consider a condominium (condo) or townhome. These types of homes often come with a lower barrier to entry – and that can help you start to build equity and enjoy the benefits of owning a home sooner.Since they're usually smaller than single-family homes, they can be easier on your wallet. While it’s not always the case, smaller square footage usually comes with a smaller price tag too. As a result, according to the latest data from Realtor.com, condos typically have a lower asking price than single-family homes (see graph below): And here’s some exciting news: builders are focusing more on homes like these. The National Association of Home Builders (NAHB) says:“The share of townhomes being built is at an all-time high.” That means there’s a good number of options to add to your home search if you broaden it to include condos and townhomes. And you may even find something that works better for your budget.So, if you're comfortable with a smaller space and want to buy your first home before the spring rush, adding these types of homes to your search might be your answer.The Perks of a Condo LifestyleLiving in a condo has a bunch of other perks, too. Let’s look closer at why condos are appealing for first-time buyers: They help you start building equity. When you buy a condo or townhome, you build equity and your net worth as you make your mortgage payments and as your condo’s value goes up over time. They can be low maintenance. Condos are great if you want to own your place but don't want to mow the lawn, shovel snow, or fix the roof. Your real estate agent can help explain any associated fees and details for the condos you’re interested in. They usually come with a range of amenities. Your condo might come with access to a pool, dog park, or parking. And the best part? You don’t have to take care of any of them. They create a sense of community. Buying a condo means you'll be living close to other people, which is nice if you want a more close-knit feel. Many communities like these hold fun events such as barbecues and parties to help create that sense of connection among residents. Remember, your first home doesn't have to be the one you stay in forever. The important thing is to get your foot in the door as a homeowner so you can start to gain home equity. Later on, that equity can help you buy another place if you want something different.Ultimately, owning and living in a condo or townhome is a lifestyle choice. If you want to see if it makes sense for you, talk to a local real estate agent. Bottom LineReady to find a home that suits your goals? A condo might be the perfect fit for your first home purchase. Let’s connect at Aurhomes Group today to start your search.
The Top 3 Reasons Affordability Is Improving
Affordability hinges on three major factors: mortgage rates, home prices, and wages. Right now, it’s improving rapidly as rates drop, prices stabilize, and wages increase. If you hit pause on your home search due to high costs, let’s discuss at Aurhomes Group why now could be the ideal time to get back in the market.
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