Building home equity can give you an asset that you can use anytime and on anything. This is the most significant benefit of a homeowner. Home equity, therefore, is the difference between your homes market value and what you owe on it. Home equity grows as the price of your home increases.
Here are ways you can build your home equity
Use financial windfalls
If you are that person, who wants to build equity faster, look for other sources of money to increase the mortgage payment. You can use a part of an inheritance you just received, cash gifts, or even bonuses to pay your mortgage.
You can also use overtime money or a salary of one of the partner if you are a couple. This would mean that you will have to cut down on your expenses which can be difficult. However, building home equity and taking advantage of appreciation period makes it more bearable.
Let the value of your home appreciate
In recent years home prices have increased significantly; therefore, homeowners have increased their equity. Depending on the market building equity can take a lot of time or less time. When the value for a house decreases, homeowners also bear the pain of reduced home equity. This happens without any efforts on your part.
Make a large down payment
Making a substantial down payment from the start will make you get instant equity. This will also make you avoid expensive private mortgage insurance. However, this would require waiting for a long time to save up enough to make such a payment. It is risky since you can miss out an appreciation period.
Increase mortgage payment
If you decide to increase payment on your mortgage, ensure the money that you pay goes to the principal and not the interest. Paying cash to your interest will not raise your equity since it applies to the principal amount only. Increasing your payments regularly with an amount that can make significance, making biweekly mortgage payment will ensure that you have an extra monthly payment in a year will reflect on your equity significantly. This will be easier on your budget as well.
Reduce your loan term
If you intend to take a 40 years mortgage plan, reduce that time to 20 years plan. A shorter mortgage repayment plan will mean higher monthly repayments and lower interest rates. You will save on the total interest as compared to the more extended repayment period. This means that you will build equity twice as fast.
Improve your home
If you decide to improve your home with the sole purpose of getting more equity, you should do your research and choose a project that will bring value to your money. Repainting your house or buying appliances may not be significant enough. Improving landscape, updating the kitchen or bathroom will have a higher chance at increasing the value of your money in the market hence increased equity.
Building equity is a worthwhile journey for you can draw on them with loan or line of credit for huge life expenses. However, it is essential to balance financial life by paying off your debts and preparing for emergencies.