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 Changer1. 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, reach out to a trusted real estate agent. They’ll help you figure out how much home equity you have right now, and how it can boost your buying power in today’s market.
Why an Agent Is Essential When Buying a Newly Built Home
For some buyers, there’s a misconception that newly built homes aren’t made to last or fall short of the quality you can find in older homes. Unfortunately, this is turning some buyers away from what may be one of their best options in today’s housing market. As Builder Online says:“As resale inventory remains limited and the price spread between new and resale homes narrows, new homes are increasingly an attractive value proposition for buyers, with incentives such as rate buydowns a way to help address ongoing affordability challenges.”So, is there any merit to the myth? Let’s break down the best way to make sure you feel good about looking into new home construction. That way, you’re not missing out on such a great option today.Choosing the Right BuilderThe key to making sure you get a quality newly built home is to choose a good builder. Reputable builders adhere to strict building codes and standards, use advanced construction techniques, and often offer warranties that cover structural issues for several years. That’s why the Mortgage Reports offers this advice:“When embarking on the journey of buying a new construction home, one of the most important steps is selecting the right builder. This decision can significantly impact the quality and satisfaction you derive from your new home.”And while you could dig into research about all the builders in your area, there’s an easier option to get the job done: lean on a pro. When you work with a local real estate agent, they already know about the builders and the new home communities under construction in your area. Beyond that, maybe they’ve even worked with other buyers who opted for a home in one of those neighborhoods. Here are just a few of the things your agent will help you with:1. The Builder’s Reputation: Your agent will help point you toward builders with strong reputations and positive reviews from previous buyers. Additionally, your agent will make sure the builder is licensed and insured. Membership in professional organizations, such as the National Association of Home Builders (NAHB), is also a good sign of a builder’s commitment to industry standards.2. Their Model Homes: Your agent will also be able to tell you if the builders have model homes you can tour. And when your agent walks through the model with you, they’ll draw your attention to the little details that matter most. Things like the quality of finishes, layout, and overall feel of the home.3. Builder Warranties: Your agent will also be able to help you navigate any builder offers or incentives. Reputable builders often provide warranties to cover major structural elements of the home for a significant period of time. This is a testament to their confidence in the quality of their construction. 4. Getting Inspections: Even with new homes, inspections are crucial. Your agent will coordinate the inspections with licensed professionals to ensure the home meets safety and quality standards before you move in.Agents Are the MVP When You’re Buying a Brand-New HomeMaybe that’s why data shows homebuyers unanimously scored their agents higher than their builders when looking back on their recent purchase:So, you don’t need to worry that they just don’t make them like they used to. By working with a knowledgeable real estate agent to choose a reputable builder, you can feel confident when buying a newly built home today. As Realtor.com says:“If you are interested in buying a new construction . . . You need your own real estate agent from the get-go. Even if it seems like plug and play to sign up with the builder’s on-site agent, you’re going to want someone representing your side of the deal.”Bottom LineIf you’re considering buying a brand-new home, don’t let misconceptions hold you back. Work with a local real estate agent to find a home you’ll love and be proud to call your own.
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 Lifestyle Living 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. Contact a local real estate agent today to start your search.
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