If you’re already a homeowner and you’re looking to buy a new home, you may have an advantage over first-time home buyers! When you sell your house, you can use the equity you have in your current home toward your next down payment. Over the past five years, home prices have significantly increased, which has caused a boost in home equity for many current homeowners. This means you can have a larger down payment, which is a major opportunity if you’ve had concerns about home affordability. While it’s not necessary to have a big down payment to buy your next home, putting more money down has a lot of perks. Here are some of the biggest benefits of using your home equity for a bigger down payment:

1. You Can Borrow Less and Save More Over Time

When you apply your home equity toward your next down payment, you can reduce the size of your new mortgage loan. A bigger down payment means you won’t need to borrow as much money. A smaller loan also results in less interest that you’ll have to pay over the life of your mortgage. This can save you a lot of money in the years to come that you can instead use for other things.

2. You Can Get a Lower Mortgage Rate

One of the biggest factors in determining your mortgage rate is financial stability. If you are able to put down a larger sum of money, your lender will see that you are not a large credit risk. The more confident your lender is in your ability to pay your loan, the lower the mortgage rate they are willing to give you. This means you can spend less money in interest over the years and increase your savings.

3. You Can Lower Your Monthly Mortgage Payments

When you use your home equity for a bigger down payment, you’re not just reducing the amount you need to borrow. You’re also reducing the size of your monthly mortgage payment. Your loan size and interest rate both directly affect your monthly payment size. By putting more money down, you’re reducing the amount you’ll need to pay toward your mortgage each month. This frees up funds for other expenses and can make your next home much more affordable.

4. You Can Avoid Private Mortgage Insurance (PMI)

Applying your home equity toward your down payment can help you avoid private mortgage insurance, or PMI. PMI is an added cost that many home buyers have to pay if their down payment is small. It’s an insurance policy that protects your lender if you are unable to pay your mortgage. You need a down payment of at least 20 percent to avoid this added monthly fee. Avoiding PMI means one less cost to worry about each month and a smaller monthly mortgage payment.

Start Searching for Pigeon Forge and Gatlinburg Homes for Sale

Are you ready to start searching for your next dream home? At Local Realty Group, we’re here to make the home buying and selling processes as easy as possible. We can help you find the perfect home for your family and get the best price possible for your current home. If you’re ready to get started, check out our featured Pigeon Forge and Gatlinburg homes for sale and reach out to us today to speak to an experienced real estate agent about selling your house and finding your next home!