Remember when you were saving every penny for the down payment on your first home? You probably watched your spending, put money aside whenever you could, and wondered how long it would take to save enough to finally become a homeowner.
Well, if you’ve owned that home for a while, you may be in a much better position today. Over the years, you’ve likely built equity in your home, and that equity could make purchasing your next home a whole lot easier. If you’re wondering exactly how equity works, we explained it in our previous article, What Is Home Equity? A Simple Real Estate Example.
Using Your Equity to Move Up to a Larger Home
Maybe the home you purchased years ago was perfect for your needs at the time, but things have changed. Your family has grown, you need a home office, or you’ve simply reached the point where you’d like more space.
The good news is that you may not need to save for another down payment the way you did when purchasing your first home. When you sell your current property, the equity you’ve accumulated can help fund the down payment on your next home. Depending on how much equity you have, you may be able to make a substantial down payment on that larger property, reducing the amount you’ll need to borrow.
If you’re planning a move to a larger home, there’s another important consideration: what happens when you need the money from your current home to purchase the next one? Deciding whether to sell your current home before buying your next one is an important part of the process, particularly when you’re relying on the proceeds from your sale to help finance your purchase.
Your Equity Can Also Make Downsizing Easier
What if you’re not looking for a larger home? Maybe the kids have moved out, you no longer need all those bedrooms, or you’re ready to trade a large yard and ongoing maintenance for something a little easier to manage.
The equity you’ve built in your current home can help make that transition possible, too. Depending on what your home sells for and the cost of the property you’re purchasing, you may be able to put down a significant amount of money and carry a much smaller mortgage. You might even have enough equity to purchase your next home with cash.
For homeowners who are thinking about downsizing, particularly those approaching retirement or simply looking to reduce their housing expenses, that can be an attractive option.
What Could Your Home Equity Do for You?
Whether you’re planning to move up to a larger home or downsize to something smaller, the first step is understanding what your current home is worth. Once you have an idea of its market value, your remaining mortgage balance, and the expenses associated with selling, you’ll have a better picture of how much money could be available for your next purchase.
Buying your first home required saving for that initial down payment. Buying your next home may be a very different experience because you’ve already spent years building equity.
Next Steps
If you’re considering a move in Newtown, Sandy Hook, or one of the surrounding Connecticut communities, we’d be happy to help you explore your options and determine how your current home could help you make your next move.