Did you know your home equity can help make buying your next home more affordable? Many homeowners can make a larger down payment on their new property by using the equity from their current home sale. With rising equity levels, this option is becoming increasingly popular, and it’s no wonder why. According to recent data from Redfin, the median down payment for U.S. homebuyers is now $67,500—a 15% increase from last year and the highest on record (see graph below).

Here’s how your equity can make this possible. As home prices have appreciated over the past five years, homeowners like you have seen a significant increase in equity. When you sell your home, you can use that equity to make a larger down payment on your next purchase. This can be especially beneficial if you’re concerned about affordability in today’s market.

While you don’t necessarily need a large down payment—some loan programs allow as little as 3% or even 0% down—a bigger down payment has some compelling advantages.

Why a Bigger Down Payment Matters

1. Borrow Less and Save More Over Time Using your equity for a larger down payment means you’ll borrow less, which in turn reduces the amount you’ll pay in interest over the life of your loan. The less you owe, the more you can save in the long run.

2. Potential for a Lower Mortgage Rate A larger down payment shows lenders that you’re financially stable, which can make you less of a credit risk. When lenders have greater confidence in your financial stability, they’re more likely to offer you a lower mortgage rate, adding to your savings.

3. Lower Monthly Payments With a bigger down payment, you won’t just borrow less; you could also reduce your monthly mortgage payments, making your new home more affordable and leaving more room in your budget.

4. Avoiding Private Mortgage Insurance (PMI) If you can put down 20% or more, you’ll typically avoid Private Mortgage Insurance (PMI). Freddie Mac describes PMI as an added insurance policy that protects the lender if you can’t make your mortgage payments. If your down payment is under 20%, PMI is often required as part of your monthly mortgage, but if you meet the 20% threshold, you can avoid this cost.

Bottom Line

Today’s high down payments are largely thanks to increased homeowner equity, which allows for larger down payments with notable perks. If you’re thinking about selling your current home and buying another, let’s discuss how much equity you’ve built up and how it can increase your buying power in the current market.