Six Ways to Build Equity
Think of home equity like a savings fund: your equity builds with each house payment you make (building up the value of your asset), just like building the value of your savings account by making deposits into your bank account.
Equity is one of the biggest benefits of being a homeowner. As your home appreciates over time, you gain property value. Equity is the difference between what you owe on your mortgage and how much your home is currently worth. For example, if you owe $300,000 on your home and it’s now worth $475,000. this means your home equity is $175,000
If you make your home payments on time and in full, you’ll slowly build equity. But if you’re hoping to build home equity faster, here are a few ways to do so.
1. Make a big down payment
By putting down a larger down payment, you’ll instantly have more equity in your home! When you put down 20% or more on a home, you’ll also avoid having to pay PMI (private mortgage insurance), which helps to cut expenses.
2. Get a 15 year mortgage
Taking out a 15-year mortgage will help you to build equity, pay less interest, and allows you to pay off your home at a quicker pace.
3. Refinance to a 15 year mortgage
If you already have a 30-year mortgage, you can look into refinancing into a 15-year mortgage! Another way to build equity is to simply put more into your mortgage payments without refinancing. This is great for those who don’t want to permanently raise their monthly payments but would still like build equity faster.
4. Make some home improvements
Making home improvements can help to boost your home’s equity by increasing the value. Before diving into a full-blown remodel, be sure to talk with your real estate agent to figure out which renovations will be the most beneficial to raise your property value.
5. Put extra money towards your mortgage
Work bonuses, gift money, inheritances, and tax refunds are great to put towards your principal balance to help pay it off faster!
6. Play the long game
Homeowners who have owned their home for 7-10 years have an overall home appreciation rate of 47%! As you pay off your mortgage and your home’s value rises naturally, you’ll be able to build equity with time and patience.
Have questions on what you can do with your equity? Reach out!