Home equity is the difference between what your property is worth and how much you owe on it. It is essentially the portion of the home that you own outright, and it can serve as a source of financial security in the event of an emergency. With that being said, here are 10 ways to build home equity:
1. Make a larger down payment: Making a larger down payment on your home will reduce the amount of money you need to borrow and thus, lower your loan-to-value ratio. A lower loan-to-value ratio increases the amount of equity you have in your home, meaning you have a greater stake in it.
2. Pay off any lingering debt: Paying off any remaining debt, such as credit cards or student loans, will help you to gain more equity in your home. This is because paying down your debt will reduce your overall debt-to-income ratio, which will allow you to qualify for a better interest rate and ultimately, a larger loan amount.
3. Make extra payments: Making extra payments on your mortgage each month will actively reduce your principal balance and increase your equity stake in the property. Even if you only make small extra payments each month, over time, they will add up to help you build equity faster.
4. Refinance to a shorter loan period: If rates are favorable, refinancing your mortgage to a shorter loan term could be an effective way to build equity quickly. Doing so not only reduces the total amount of interest you will pay over the life of the loan, but it also expedites the amount of time you will have equity in your home.
5. Rent out part of your home: If you have an extra room, basement, or attic, renting it out can be a great way to build equity. The money you make from rent can be used to make additional principal payments on your home, which will ultimately increase your equity stake.
6. Increase your home's value: Increasing the value of your home through renovations, remodeling, or even adding a deck or shed can help to increase the overall value of your property. It’s important to note, however, that not all improvements will necessarily add value to your home, so make sure to research potential projects before committing to them.
7. Invest in your neighborhood: Investing in your neighborhood by joining civic organizations, attending meetings, and supporting local businesses can help to strengthen your community. Not only does this benefit your neighborhood in the long run, but it also helps to increase the value of your own home.
8. Utilize the equity line of credit: An equity line of credit, otherwise known as a HELOC, is a type of loan that allows you to use the equity in your home as collateral. By taking out a smaller loan and making regular payments on it, you can effectively build equity in your home over time.
9. Regularly maintain your home: Staying on top of routine maintenance, such as changing air filters or regularly cleaning gutters, can help to extend the lifespan of your home and keep it in good shape. This is important because, if you ever decide to sell, you’ll be able to get a higher price for it, which will then increase your equity.
10. Connect with a real estate professional: Finally, connecting with a real estate professional who understands the area in which you live can help to give you insight into how to best build equity in your home. They’ll be able to provide tips and strategies to help you get the most out of your investment.
Building home equity is an important aspect of homeownership and can be achieved by using any of the methods mentioned above. While it may seem like a daunting task at first, taking the time to research and implement an appropriate strategy can be incredibly beneficial in the long run. By increasing their equity stake in their home, owners can enjoy both financial security and peace of mind.
This article was contributed on Sep 21, 2023
