Is Putting 20% Down on Your Next Home a Better Choice?

When buying a home, you do not necessarily have to put 20% down. Depending on the borrower and loan program, a Conventional Loan may allow as little as 3% or 5% down, an FHA Loan typically requires 3.5%, and qualified buyers may even be able to purchase a home with no down payment through a VA Loan.

Even so, if you have enough funds available, putting 20% down can still be an attractive option.

According to a Keeping Current Matters article published on August 10, 2026, buyers who are selling their current home and purchasing their next one should especially consider whether the equity they have built in their current home could allow them to make a 20% down payment.

1. It Can Lower Your Monthly Payment

The more you put down, the less you need to borrow. A smaller loan balance means lower monthly principal and interest payments.

For example, if you purchase a $500,000 home with a 10% down payment, you would need to borrow $450,000. With a 20% down payment, your loan amount would be reduced to $400,000.

Even at the same interest rate, the difference can significantly reduce both your monthly mortgage payment and the total amount of interest paid over the life of the loan.

This can be particularly important in Illinois, where property taxes can be relatively high. In addition to principal and interest, buyers need to consider property taxes and homeowners insurance when calculating their total monthly housing cost. Reducing the loan amount can therefore make a meaningful difference in overall affordability.

2. You May Be Able to Avoid PMI

With a Conventional Loan, putting less than 20% down will generally require Private Mortgage Insurance, or PMI.

PMI does not protect the buyer's home. Instead, it protects the lender if the borrower is unable to repay the mortgage. However, the buyer is responsible for paying the cost, typically as part of the monthly mortgage payment.

Putting 20% down can generally allow you to avoid PMI from the beginning, which can further reduce your monthly housing costs.

Keep in mind that FHA Mortgage Insurance works differently from Conventional Loan PMI. Rather than comparing down payment percentages alone, it is important to evaluate the entire loan structure.

3. You May Qualify for More Favorable Loan Terms

A larger down payment generally means less risk for the lender. If your credit score, income, debt-to-income ratio, and other financial qualifications are strong, you may have access to more favorable interest rates or loan terms.

However, putting 20% down does not automatically guarantee the lowest possible interest rate.

Your final terms can depend on your credit score, loan-to-value ratio, loan type, occupancy, and other factors. That is why it is important to compare multiple financing scenarios rather than assuming that 20% down is always the best option.

4. Your Offer May Look Stronger to the Seller

For sellers, the purchase price is important—but so is the likelihood that the transaction will successfully close.

A buyer making a larger down payment may be viewed as having more financial flexibility to handle potential appraisal issues or financing challenges. In a multiple-offer situation, a 20% or higher down payment can therefore be one factor that demonstrates financial strength.

Of course, a larger down payment does not automatically make an offer the winner. Price, closing date, financing terms, inspection contingencies, and other contract terms are all considered together.

Your Current Home's Equity Could Fund the Down Payment on Your Next Home

Many repeat buyers are in a stronger position than when they purchased their first home. They may have built substantial equity through both mortgage principal payments and home appreciation.

To determine how much money you can actually use toward your next home, you need to subtract your remaining mortgage balance, selling expenses, tax adjustments, and other closing costs from your home's expected sale price.

There is a big difference between thinking, “Our home has gone up a lot in value,” and knowing exactly how much money you will have available after the sale.

Your estimated net proceeds from the current home, the down payment for the next home, and closing costs should all be considered as part of one overall plan.

That Doesn't Mean You Should Always Put 20% Down

The advantages of a 20% down payment are clear, but using nearly all of your available cash just to reach 20% may not be the best decision.

After buying a home, you may need money for repairs, moving expenses, furniture, appliances, and unexpected expenses. In Illinois, property taxes can also make the amount needed for escrow and closing higher than buyers initially expect.

Before deciding on a 20% down payment, make sure you will still have an adequate emergency fund afterward.

If putting 20% down would leave you with very little cash, choosing a slightly smaller down payment and keeping more money available for emergencies may actually be the safer financial decision.

The Important Number Isn't 20%—It's Your Overall Strategy

When deciding how much to put down, consider all of the following:

• Cash remaining after the down payment

• Monthly principal and interest

• PMI or Mortgage Insurance

• Property taxes and homeowners insurance

• Estimated closing costs

• Net proceeds from selling your current home

• Expected repairs and emergency savings after the purchase

If you have built significant equity in your current home, using that equity for a 20% down payment could be a good opportunity to reduce your monthly housing costs while moving into your next home.

On the other hand, if reaching 20% would require you to wait several more years or use nearly all of your emergency savings, a different loan structure may be more appropriate.

Selling your current home and purchasing your next one should not be viewed as two separate transactions. They are part of one connected financial plan.

If you're planning to sell your current home and purchase your next home in the Chicago or Illinois area, contact Chicago Realtor Sang Han to discuss your estimated home equity and purchase strategy. We can help you evaluate everything from the timing of your sale and purchase to the right down payment strategy for your situation.

Chicago BDBSang Han

Platinum Partners Realtors

Illinois Licensed Realtor®

License #475.179051

773-717-2227

ChicagoBDB@gmail.com