Home equity is something every homeowner wants to have. Home equity is the percentage of your home’s value that you own, and it is the key to building wealth through homeownership. It can be your greatest financial asset, your largest component of personal wealth, and your protection against life’s unexpected expenses. This article focuses on six smart strategies to use to successfully build home equity.
Home Appreciation
The current market is great for a homeowner and their home’s equity. Building home equity through home appreciation can take some time, however when the home prices are spiking it takes no time at all. Even in a slower market, you can still earn equity through your home’s appreciation. Remember location, location, location is the biggest determining factor.
Down Payment
When you first purchase a home, your down payment is your equity. For example, if you put $12,500 down on a $250,0000 home, your down payment is 5% which also equals your equity. This means the larger your down payment, the more equity you will start off with. This decision should be made with your financial situation in mind. A good rule of thumb is to consult with a loan officer on what your down payment should be.
Financial Gains
If you happen to run into extra money from things such as a work bonus inheritance or gift, use this money to pay down your mortgage. This will help with building home equity faster.
Biweekly Payments
This is a good way to pay off a mortgage faster and pay less in interest over your mortgage’s lifetime. Making a bi-weekly payment is better because you are paying half your monthly payment once every two weeks.
15-year vs. 30-year mortgage
A 15-year mortgage will allow you more equity in a shorter amount of time all while having a lower interest rate. Not only will your interest rate be lower, but you will also save more in the long run because you are paying interest for a shorter amount of time. The only downside to this is that your monthly payments will be higher with a 15-year home loan.
Home Improvements
Making home improvements such as a kitchen renovation or additional bathrooms or rooms adds value to your home. The important factor is to make sure you do not put too much money into home improvements that you cannot get back out of it. You want to add value to your home, so you need to consider your market. A buyer’s market will need to have a home that is almost perfect, whereas a seller’s market has room for small needed improvements.
If you are in the market for a home, then use a Realtor to help you with the home buying process from start to finish. A Realtor can make sure you will choose a home that will bring you great value both financially and emotionally.
