Building home equity is one of the biggest benefits of being a homeowner. Your home becomes a valuable asset you can use down the road when you build equity.In a way, home equity is similar to a savings account.
Your equity will build with each house payment you make (building up the value of your asset), just like building the value of your savings account by making deposits into your bank account. If you make your home payments on time and in full, you’ll slowly build equity. However, if you’re hoping to build home equity faster, you can either increase your property value or decrease your mortgage debt.
MAKE A BIG DOWN PAYMENT/PAY MORE ON YOUR MORTGAGE
Depending on your loan options, you could put as little as 3% down on a home – but putting more money down instantly boosts your equity. If this isn’t an option for you, you may want to consider paying more on your mortgage. You’ll be making your regular home payments already, but making extra payments will help you to build equity at a faster pace by decreasing the overall total you owe.
- You can do this by adding one extra payment to your mortgage each year by switching to biweekly mortgage payments
- Checking your budget each month and decide how much extra you can put towards your mortgage
- Using extra money to add to your mortgage – cash gifts, tax refunds, extra savings, bonuses, etc.
REFINANCE TO A SHORTER LOAN TERM
A shorter loan term definitely has its benefits. Choosing a 15 year mortgage will help you to build more equity every month than a 30 year mortgage. You can also refinance into a shorter term-loan if you already have a mortgage. That being said, payments are higher on a short term loan, so be sure to keep that in mind and evaluate your financial situation before making that decision.
INCREASE THE PROPERTY VALUE
Making home improvements can help to boost your home’s equity by increasing the value. Before diving into remodels, be sure to talk with a real estate professional to figure out which renovations will be the most beneficial to raise your property value.