Building your home equity is just as important as eating your vegetables. Making it a priority is one of the best ways to create your financial stability and increase your wealth.
You shouldn’t view your home’s equity as an abstract number that means nothing to you. It’s more like a savings account that can support you with expenses like paying for retirement, home improvements, or your children’s college tuition.
Want to happily watch your equity grow in leaps and bounds? Read on to find out how to build home equity like a pro.
Make A Larger Down Payment
Start building home equity before you even own your home by saving as much as possible for a down payment. Set yourself up with a savings app like Tip Yourself and transfer small amounts of money here and there while going about your day. Did you forgo that expensive cup of coffee? Add its price to your savings. Did you take your lunch to work? Transfer the cost of a restaurant meal to savings.
In addition to small savings, make some more difficult decisions. Postpone that big vacation to Hawaii for a couple of years and pop that money into your down payment fund. Drive your old, paid-for car another year or so and add those new car payments to savings.
Another way to make a larger down payment is to buy a less-expensive home. Even a house that’s a few thousand dollars cheaper than your original budget makes your down payment a bigger percentage of the total cost of your home. The result is a larger amount of equity.
Opt for A Shorter Mortgage
Automatically choosing a 30-year mortgage loan isn’t the best idea, especially if your goal is to increase your home equity fast. Talk to your loan originator about 15-year or even 10-year mortgage options. Depending on the type of loan and interest, a shorter term mortgage may not add much more (maybe less than $100 per month) to your monthly payments but will stockpile the equity in your home quickly. Look at a mortgage payment calculator to determine if you can handle the payments of a shorter-term loan and try to work it into your budget.
Pay Extra Toward Your Principle
Even if you chose a 30-year mortgage, you can still build equity in your home like a pro by paying a bit extra every month toward the principle. Doing this helps you build equity faster and saves lots of money on interest payments.
For example, if your payment is $1,000 a month on a $190,000 30-year mortgage at a 5% fixed rate, divide that by 12 months and you get $83. If your budget allows, pay this amount on top of your regular mortgage payment every month. This small extra payment over the course of a 30-year mortgage will build your equity faster, pay off your loan almost five years quicker, and save around $32,000 in interest! Paying extra on your mortgage loan is only one way to build equity. You can also…
…Increase Your Home’s Market Value
Homeowners who embark on smart renovations can increase their equity fast. Keep in mind, however, not every home improvement plan accomplishes this. Choose the right ones, such as a kitchen renovation, bathroom remodels or addition, or investing in energy efficiency. Avoid high-end investments in your kitchen and bath, and expensive landscaping if your goal is to build home equity. Those may look nice, but they do little to increase the home’s value.
Let Your Property Value Appreciate
The last way to build equity in your home is to have patience. This one may be the easiest way of all! Live your life, make your mortgage payments on time, keep up your home conscientiously, and watch the months click off the calendar. As time passes, property values tend to increase, which adds to your home’s equity.
You don’t have to use all these strategies to build equity in your home. Starting with just one of them makes a difference in the long term. Equity builds even faster when you commit to two or more of them. By decreasing your mortgage loan debt and increasing your home’s worth, with a few years thrown in, you’ll enjoy a hefty amount of home equity that will open doors to financial opportunities that make your life easier and less stressful.