Top 7 ways to Build Home Equity

Top 7 ways to Build Home Equity

Owning home leads to great opportunities. Home equity is one of them. Home equity is the percentage of your home's value that you own. This is the key to building wealth via home ownership. Building equity is one of the primary financial benefits of homeownership.

In order to know to how to grow is Home equity, let's first define home equity. Equity is the amount of your home that you actually own after accounting for debt. To calculate this value, one can subtract current loan balance from the current market value of your home.

Example: If your home is worth $350,000, and you owe $200,000 on your mortgage. $350,000 minus $200,000 equals $150,000 of equity in your home.

What can you do with your equity? Equity is an asset, and you can:

  • You can receive cash after you sell the home and pay any related costs
  • Borrow against it with a home equity loan or home equity line of credit (HELOC). HELOC is a home equity line of credit.
  • You can use it for a down payment on your next home purchase.

Increase the Property Value

  1. Home value appreciation: While it takes longer to get home prices to apprecitate, it is one of the easier to get more home equity. Median home value grew from $185,000 April 2016 to $216,000 in April 2018. This indicates that home appreciation is powerful and it will lead more wealth over time. So instead of waiting longer to buy a home, one could buy home to get more equity.

  2. Home improvements: You can always invest in your home to increase its value. Updating kitchens and bathrooms, improving landscaping, and making the home more energy-efficient can all pay off. But those projects cost money up front, and you need to be confident that you can more than recoup those costs. If you’re making improvements mainly to build equity, pick projects with the highest return on investment (ROI). Some of the websites which can help in this task are Houzz,

  3. Home Upkeep : Routine maintenance is tedious (and it costs money), but a home that’s falling apart is not worth much to anybody. If you fail to address maintenance issues like leaks and deteriorating roofing, your home equity may decrease over time.

    Photo by Discovering Film / Unsplash

Reduce the Debt

  1. Make a big down payment :As shown above, the more payment you have made, you have more equity. so it is often easier to start with a larger down payment, since that is instant equity. You could put down 20% or more of the property’s value for a bonus.

  2. Get a 15-year mortgage: 15-year mortgage is usually better than 30-year mortgage. So taking out a 15-year mortgage, or refinancing into one from a 30-year loan, piles on the equity and at a lower interest rate. 15-year mortgage minimizes the total borrowing costs and allows you to eliminate debt quickly which means more equity quicker. You’ll save plenty on the total interest, too, because you pay interest for less time. But remember, there’s a catch: Your monthly payments are higher with a 15-year home loan.

  3. Increase payment frequency: By increasing the payment frequency, you will reduce the debt and increase home equity.

  4. Pay more on your mortgage: Check with your mortgage company first. Some companies only accept extra payments at specific times or may charge prepayment penalties.

a) Add an extra sum to your monthly payment. Pick an amount big enough to make a difference but not so big that it crimps your budget. For example, if your payment is $983, round up to $1,100, and then increase the amount when you’re able.
b) Another version of adding to your monthly payment: Boost the payment by an amount equal to a twelfth of a payment. By the year’s end, you’ll have made an extra payment.
American Coins
Photo by Steve Johnson / Unsplash

Overall, home equity is one the greatest assets to build wealth. Overtime, you will be able to build a lot of equity using your home.