How to Easily Build Home Equity
You just bought or are looking to purchase a new home. In a hot market, everyone wants to know: How do I build equity—and fast!
Equity is a great way to grow a nice financial cushion. Real estate is one of the quickest ways to garner wealth.
Here are the proven methods on how to easily build home equity:
What is Equity?
Home equity is the current value of your home minus what you still owe toward the mortgage. In simpler terms: Value of the home – loan balance.
For example, if your home is worth $500,000 and your remaining mortgage totals $250,000, you have $250,000 worth of equity on your home. Home equity is considered an asset and is included in the homeowner’s net worth. NOTE: Home equity is not considered a liquid asset.
How Does Equity Work?
When you have a mortgage loan, the associate lender bears interest in your home until the loan has been paid off. The equity of the home is the section of a home’s current market value that you as the owner retain at all times.
The equity is first obtained with the down payment on the home at the point of sale. The equity continues to increase as each mortgage payment is paid as it goes toward the principal that you owe. When the appreciation of the home value increases—so does your equity!
How Do I Build My Home Equity?
There are several proven ways to build your home equity. The most popular include:
Increase down payment
The most convenient way to build your home equity is to increase your down payment. If your home is valued at $350,000 and you make a $100,000 down payment, you would instantly have $100,000 in equity on your home as you now only owe $250,000.
Make larger payments toward mortgage
Making larger payments or additional payments will quickly increase your equity. Your home equity builds when you pay toward the principal—or the amount you owe on your home. Your cash will be converted into equity when it is paid toward the principal!
Home equity can be increased when you refinance your home to shorten the mortgage term. The longer the mortgage term, the more money goes toward interest and not the principal of the home. Secure a lower interest rate so more of your money goes toward paying off the home.
Invest in remodeling and upgrading
When you increase the value of your property, your equity grows. The best ROI—return on investment—is a kitchen remodel. When you upgrade your kitchen, expect an 83.1% ROI!
Home equity is one of the ultimate perks of being a homeowner. The faster you pay toward your principal, the more money you save on pesky interest—and the faster your equity grows!
Equity can be built from the moment you put a down payment on your home. Refinancing and investing in remodeling and upgrading the home can quickly increase the property value and thus, your home equity.