Tips To Help Build Equity In Your Home Faster

Tips to Build Your Home Equity Quicker

With the consumption of home equity for many homeowners (reduced to zero equity or, worse, to negative equity)in today’s real estate market it makes sense to have a discussion on what a homebuyer and homeowner can do to increase their equity faster and retain it once it is built.

The primary goals of home ownership should be the building of equity in the home. Equity is the difference between the current value of a property and the balance of all the mortgage obligations. As values increase and mortgage payments reduce the level of debt, the equity also grows.

Why Equity in a Home is Important:

The appreciation of equity in a home is one of the easiest and most successful paths to wealth that is available to you. It is almost painless. You make the mortgage payment that you would have to make anyhow and the balance is reduced. Meanwhile, the value of the home is rising. Every month your nest-egg should be growing. The sooner you find yourself at 100% equity, owing nothing on your home, is the quicker route to retirement, less financial stress, and true financial wealth.

How to Build Additional Equity:

There are several ways to build additional equity in a home, some are easier than others but they are all effective.

1.       Setting a higher initial down payment - The most obvious way to build additional equity is at the first opportunity, making a larger down payment at the time of purchase. This extra money is immediately invested in the home, making it less enticing to spend.

2.       Making extra principal payments - The most obvious way to build additional equity is at the first opportunity, making a larger down payment at the time of purchase. This extra money is immediately invested in the home, making it less enticing to spend.

Making extra payments of principal has a double effect on your equity:

·         Every dollar you send reduces your debt by the same amount.

·         Reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest.

NOTE: Although most loans allow it, be certain that your lender will accept extra payments of principal. 

3.       Selecting a shorter mortgage term (10, 15 year mortgages over a 30 year) - The lower mortgage interest rates that we have seen recently means that for many buyers, they are able to either initially secure a mortgage with a shorter term or, if they are currently in a long term mortgage (30 year mortgage), refinance to a shorter term. These shorter mortgage terms mean that you will be paying down your principal sooner and gaining additional equity at a faster rate.

4.       Home improvements - When you improve the quality or size of your home, you also increase its value and your equity. Keep in mind that essentially all home improvement projects will bring some return; some are much more beneficial than others. For example, remodeling kitchens or bathrooms traditionally have brought a greater return on investment than adding leisure amenities such as pools or whirlpools. To get the maximum equity increase, make certain that the type of improvements you are looking to do will raise the value substantially.

Building additional equity in your home can be relatively simple yet extremely rewarding. Not only can it bring a real sense of achievement, equity in your home brings a wealth of options, most notably the fact that you are building a nest egg with a minimum of effort. Explore the options to find the equity building plan that best suits your needs and timetable.