If you already own a home and are ready for something bigger, smaller, or simply better suited to your life, you may be what we call a move-up buyer. One of the biggest questions move-up buyers face is how much of the equity from their current home they should put toward the next one.
Many buyers automatically assume that putting 20% down is the smartest choice. It eliminates private mortgage insurance and lowers the monthly payment—but that does not necessarily make it the best option for every buyer.
In this video, I sit down with my go-to lender, Rodrigo Salazar, to compare different down-payment options and discuss why keeping some of your cash available may be worth considering.
Ultimately how much you put down is a personal preference. We are professionals that just want to illustrate that you have options. How you move forward is always up to you.
Watch the full video: Should You Put 20% Down?
A move-up buyer is someone who owns a home but wants to purchase another property. You may need more space for a growing family, want to downsize, relocate, or move into a home that better fits your current lifestyle.
Because many longtime homeowners have built substantial equity, selling the current home can provide a large amount of cash for the next purchase. The important question is: Should all of that money go back into the new house?
In our example, we looked at the estimated costs of purchasing a $500,000 home with different down payments. We used the same sample interest rate for each option and included estimated property taxes and homeowners insurance. Loans with less than 20% down also included mortgage insurance.
With 5% down, the down payment would be $25,000. Based on the assumptions used in the video, the estimated total cash needed at closing was approximately $32,000, with a monthly housing payment just under $4,000.
Putting more money down lowers the payment, but sometimes the difference is smaller than buyers expect. In our comparison, moving from 5% down to 10% down required another $25,000 upfront while reducing the estimated monthly payment by only about $174.
At 20% down, the estimated cash needed at closing was approximately $106,000. Compared with the lower-down-payment option, that meant tying up roughly $75,000 more to save around $690 per month. Using those sample figures, it would take approximately nine years for the monthly savings to equal the additional cash paid upfront.
These figures are examples—not a personalized loan quote. Interest rates, mortgage insurance, taxes, insurance, closing costs, credit, loan type, and seller credits can all change the numbers.
Money used as a down payment becomes home equity, but home equity is not the same as cash in the bank. To access it later, you would generally need to sell the property or qualify for a home-equity loan or line of credit.
Keeping part of the proceeds from your sale available could give you more flexibility to:
You could also choose a smaller down payment initially and make additional principal payments later. That gives you time to settle into the home, understand your new expenses, and decide how much cash you are truly comfortable committing.
Absolutely. A 20% down payment may be a strong option when it comfortably fits your finances, the lower monthly payment is important to your budget, and you will still have adequate savings after closing.
The point of this comparison is not to say that 5%, 10%, 15%, or 20% is always best. The right answer depends on your income, savings, other debts, future plans, risk tolerance, and stage of life.
A buyer in their 30s who expects their income to grow may make a different decision than someone approaching retirement and planning to stay in their next home for many years. The best strategy is personal.
Your maximum loan approval is not automatically the same as your ideal budget. Before deciding how much to put down, consider the full cost of owning the next home and how the payment fits into your household finances.
Ask yourself:
As a real estate agent, my job is not to tell you which percentage to choose. My job is to help you understand your options, coordinate the sale and purchase, and give you the information you need to make a confident decision. Your lender can provide the loan comparisons, and a financial advisor can help you evaluate the larger financial picture.
Selling one home while purchasing another can feel complicated, but the right plan can make the process much smoother. Before listing your current home, we can estimate your likely sale proceeds, discuss timing and contingencies, and coordinate with your lender to compare down-payment scenarios.
If you are thinking about making a move in Northern Illinois, contact Rebekah Davis with Compass and the Grant Fetter Homes Team. I would be happy to help you build a personalized plan for selling your current home and purchasing the next one.