If you’re planning to buy your next home soon, you’ve probably heard the old rule that you need to save 20% for a down payment.
The truth is, you usually don’t have to. There are plenty of loan options that let qualified buyers put down much less. Still, many repeat buyers are choosing to put 20% down anyway.
So, if they don’t have to, why are so many buyers choosing to put 20% down?
Two big reasons. They know putting more down can pay off, and after years in their current home, they’ve built enough equity to make a larger down payment possible.
Repeat Buyers Put More Money Down
According to the National Association of Realtors (NAR), the typical repeat buyer puts down 23% when purchasing a home, as shown in the graph below.
That’s more than double the 10% many buyers put down when they bought their first home. So, how are they able to do it? They’re using the equity they’ve built up in their current home.
When you’ve owned your home for a while, two things usually happen. You pay down your mortgage, and your home may increase in value. The difference between what your home is worth and what you still owe is your equity. And the longer you own your home, the more equity you can build.
When you sell your home, the equity you’ve built turns into cash. NAR data shows that most repeat buyers use that money toward the down payment on their next home, as the chart below shows:
First time buyers don’t have that advantage yet, and that’s completely normal. But if you already own a home, you may have more buying power than you realize thanks to the equity you’ve built.
If putting 20% down is finally within reach, it may be worth considering. Here’s a look at what you could get in return.
4 Perks of Putting 20% (or More) Down
As Redfin explains, putting more money down can benefit you in several ways:
A lower monthly payment. The more you put down, the less you need to borrow at today’s rates. If a higher mortgage rate is making you think twice about moving, a larger down payment can help lower your monthly payment.
Less interest over time. A smaller loan means you’ll pay less interest over the life of your mortgage. With 20% down, you’re borrowing 80% of the home’s price instead of 95% with a 5% down payment.
No private mortgage insurance. With a conventional loan, putting less than 20% down usually means paying PMI each month. Putting 20% down can help you avoid that extra cost.
A stronger offer. A larger down payment can make your offer more appealing to sellers because it may show that your financing is solid and the deal is more likely to close.
Bottom Line
No, you don’t need to put 20% down to buy your next home. But it could be worth considering. If the equity you’ve built makes it possible, a larger down payment could lower your costs and make your next move more affordable, even with today’s rates.
A trusted lender can help you run the numbers and see what works for your budget. And if you want to know how much your current home could contribute toward your next down payment, let’s talk.
