Using Your Equity to Your Benefit
We’ve talked several blog posts ago about not needing a large down payment and the myths surrounding that, but what changes if you do have a large down payment?
The latest data from Redfin shows us that a typical down payment for a home in the US is $67,500, which is the largest on record!
Over the last 5 years, prices of homes have increased dramatically, which has increased the equity for homeowners. When homeowners sell, they can take advantage of that equity and put it into a larger down payment for their next home. As we talked about in the other post, a larger down payment isn’t always necessary, nor required–however, there are definitely benefits to them!
One benefit is that you could get a lower interest rate. When you show a mortgage company that you have the finances to put more money down, you are showing that you are less of a large credit risk and this will make them more confident in lending and your ability to pay back your loan. In turn, they could potentially lower your rate.
Another benefit would be skipping Private Mortgage Insurance (PMI). PMI is a cost that is added to ensure protection for the lender if you are unable to pay your mortgage. It is a monthly fee that is rolled into your mortgage payment and is required if you have a less than 20% down payment. Not having this payment is one less monthly expense.
Lower monthly payments? Yes, please! A larger down payment makes it possible for your monthly mortgage payment to be less. This can help to make your next potential home more affordable and give you some wiggle room in your budget.
Lastly, you can use your bigger down payment to borrow less from a lender which will then save you money in interest. Most of us want to keep as much money in our pocket as possible and less interest is certainly a way to do that!
Overall, down payments are at their highest, largely due to gains in equity by homeowners. If you are a homeowner interested in figuring out how much equity you have, let’s work together to maximize that power!
