If you’ve purchased a home, then you’re already aware of the many things it brings together to enrich your life even further: shelter, possible access to better schools, realized dreams, and a kind of forced savings account. How is it a home a savings account? In the way that an owned home allows you to build and grow equity—the difference between how much your home is worth and how much you owe on it.
Building your home equity will give you more than just utter joy, but an opportunity to grow your wealth over time, on your own terms. It can also provide you with some security, as the more equity you have in your home, the more you can draw off that equity to help pay for a child to attend college or pay off an unexpected expense. So, how can you take control and build equity in your home? Simply put, you can increase your home’s value or reduce the amount you owe. Here’s what we suggest.
1: Start with a BIG down payment
If you’re just getting started and are in the process of buying a home, then you can start off strong by putting down a large down payment. That’s instant home equity as you’ll start off owing less, right off the bat. Plus, if you put down 20% or more as a down payment, you avoid private mortgage insurance—a huge benefit.
2: Overpay when you can
If you’re able to overpay on your monthly mortgage payment, do it! The more you pay off, the more home equity you build. If you do pay more, be sure that extra payment goes toward your principal. You can pay a little more every month, make one larger payment annually, or even start paying twice a month.
3: Budget obsessively
If you and a partner are paying the mortgage together, you may be able to tighten the belt to really make a difference. Earmark one person’s salary to be used entirely for mortgage payments, while the other one pays for all other expenses. This can be tough, and isn’t an option for everyone, but it’s a surefire way to ensure your home equity will skyrocket in no time.
4: Use everything you’ve got
It could also be valuable to dedicate any extra money coming in towards paying off your mortgage, whether it’s a bonus at work, a gift, or inheritance. If you get a raise at work, consider dedicating that entire raise amount to paying off your principal. Using all your extra funds to pay off more of your mortgage will only help with home equity.
5: Refinance when possible
Sometimes, refinancing your home is a great way to go, especially if there are lower interest rates for you to take advantage of. You may even want to consider switching to a 15-year loan, where interest rates are usually lower. The monthly commitment might be high for some, but if you can swing it, halving the amount of time you owe on your mortgage will do wonders for your home equity.
6: Make improvements
Some home improvement projects can help with home equity too, but not all improvements are created equally. Choose projects that will actually add value. You may want to add a stone facade to the front of the house because it looks good, but replacing the 15 year-old garage door will give you far more bang for buck. According to Remodeling Magazine, the average payback on common upgrades is 64 cents to each dollar spent, so choose your projects wisely, and when possible, pay with cash.
Do you have any questions about building your home equity? As always, Metro REIG is here to help. We’re a full service brokerage with the expertise to guide you as you navigate the world of property management and real estate. Why not set up a free consultation with us? Let’s chat and see how we can work together.