Mortgage Advice

5 Smart Ways to Build Home Equity

October 24, 2018

There are two types of people in the housing world: those who own their home, and those who rent. While each may be paying similar monthly costs in a particular neighborhood, homeowners enjoy one big difference–equity.

When homeowners make monthly payments, they are building up credit and helping themselves achieve financial stability. But when renters make monthly payments, that money is going straight into their landlord’s pocket.

We all need a place to live. If you’re going to pay housing costs, you might as well build equity while you do it. To help you better understand why home equity is so important, it’s worth knowing what it is in the first place.

What is Home Equity?

 Home equity is the amount of your home that you actually own. In other words, your home equity is equal to your home’s current market value, minus your remaining mortgage balance.

When you buy a home, it’s more than just a place to live–it’s also a valuable financial asset. In paying your mortgage each month, the money you put towards the principal doesn’t simply go down the drain. The more you pay it down, the more your home equity grows.

This equity can eventually become liquid cash that you can access, either by selling your home or borrowing against it.

 How Can I Build Home Equity?

 Now that you know the importance of home equity, here are five smart ways to build it:

  1. Increase your down payment. If you’re considering buying a home, know this–the higher you’re able to make the down payment, the more equity you’ll have right off the bat.
  2. Make extra mortgage payments. Since paying off your mortgage helps you build equity, you’ll grow it even faster (and be able to pay off your loan sooner) by making extra payments each month. Many companies even allow you to set your own recurring schedule, so you can make extra payments at an interval you feel comfortable with.
  3. Improve your home. When you invest in home improvement projects–like an updated kitchen or bathroom–you’re increasing its value and, thus, boosting its equity. Just be sure to choose upgrades that provide the biggest payback.
  4. Add curb appeal. Consumer Reports says that improving your home’s curb appeal boosts its value by around 3-5%. Even simple things like trimming bushes, establishing a garden, painting your front door and washing the siding can make a big difference.
  5. Shorten your loan term. If you have a 30-year mortgage, consider switching it to a 15-year to gain equity that much faster. The only downside is higher monthly payments, so talk to a loan officer to ensure it makes good financial sense for you.

While price appreciation varies by region, the overall trend is that home values–and consequently, home equities–have gone up in the past five years. If you’re a current homeowner, there’s a good chance you already have equity available to you.

To learn more about the benefits of home equity, and to begin your own journey to homeownership, send us a message. Or, give us a call at 800.521.5362.