The Case for Putting 20% Down on Your Next Home

by Linda Duba

If you're thinking about buying your next home, you've probably heard the old rule about putting 20% down.

The truth is, you don't have to put 20% down to buy a home. There are loan programs that allow qualified buyers to purchase with much less.

But for homeowners who have built equity in their current home, putting 20% down may be worth considering.

Repeat Buyers Often Have More Buying Power

According to the National Association of Realtors, the typical repeat buyer puts about 23% down on their next home, compared with around 10% for first-time buyers.

So how do repeat buyers come up with a larger down payment?

Often, it's their home equity.

As you pay down your mortgage and your home's value increases, you build equity. When you sell your current home, that equity can become cash that you can put toward your next purchase.

For Arizona homeowners who have owned their homes for several years, that could mean having more buying power than they realize.

Why Consider Putting 20% Down?

If you have enough equity or savings to make a 20% down payment, there are several potential advantages.

1. A Lower Monthly Payment

The more you put down, the less you need to borrow. A smaller loan can mean a lower monthly mortgage payment, which may make your next home more comfortable to fit into your budget.

2. Less Interest Over Time

Borrowing less also means paying interest on a smaller loan balance. Over the life of the mortgage, that can potentially save you a significant amount of money.

3. You May Avoid PMI

With a conventional loan, putting less than 20% down typically means paying private mortgage insurance, or PMI.

Putting 20% down can eliminate that additional monthly cost, depending on your loan and lender.

4. A Stronger Offer

A larger down payment can also make your offer more attractive to a seller. It may show that your financing is solid and give the seller greater confidence that the transaction will make it to closing.

Do You Need 20% Down to Buy a Home?

No.

There are plenty of financing options for buyers who don't have 20% saved. The right down payment depends on your financial situation, goals, cash reserves, and loan options.

The important thing is to look at the numbers instead of assuming there is one right answer for every buyer.

What This Means for Arizona Homeowners

If you already own a home in Arizona and are thinking about moving, your current home equity could play an important role in your next purchase.

You may have more options than you realize.

A lender can help you compare different down payment scenarios, while a local real estate agent can help you understand what your current home could potentially sell for and how that equity could contribute to your next purchase.

The Bottom Line

You don't need 20% down to buy your next home. But if your savings and home equity make it possible, putting 20% down could help lower your monthly payment, reduce interest costs, avoid PMI, and strengthen your offer.

Before making a decision, it's worth running the numbers and seeing which option makes the most sense for you.