While it’s possible to buy a home with a small initial investment, building equity has many benefits . Home equity is the owner’s net worth. Basically, it’s the amount you get by subtracting the mortgage amortization amount from the price of the home. Having enough equity protects you from foreclosure in the event of financial hardship, makes it easier to sell or refinance your home , and provides a source of emergency funds when the time comes.
The good news is that you can build some capital without any effort on your part. If you want to build capital faster, follow these steps: Here are five things you can do to increase your wealth.
1. Sit and wait
Real estate markets in most places increase in value over time . This has to do with inflation. As prices for everything else increase, home prices increase as well. Some markets increase in value faster than others, depending on your willingness to buy . Your overall location and neighborhood are factors to consider when buying to help build equity faster. Home prices can fall during economic downturns, but if you have time to stay in the home for many years, you should see prices increase more than when you bought it.
2. Pay your mortgage bills (faster)
Every time you make a mortgage payment , a portion goes toward the loan principal. This lowers the amount you owe and increases your equity. At the beginning of a loan, most of your paycheck goes toward interest. You can speed up the process of paying off the principal balance by adding extra mortgage payments each year or by increasing the amount you pay each month. If you specify that all of the extra money goes toward the principal, you’ll build up equity faster and give up less money in interest.
3. Increase your advantage
If you are about to purchase a home, you can increase your down payment amount from the minimum requirements. This gives you instant equity when you move in and an automatic cushion of having a significant investment in your home.
4. Make home improvements
If you make improvements to your home that add real value, such as a kitchen renovation, your home could be worth more and your equity would increase. Not all improvements are created equal, and many won’t change the value of your property much . Consult with a real estate professional before attempting to build equity through major home improvements.
5. Maintain your property
Letting your home fall into disrepair will definitely result in the loss of your property. Ensuring your roof and HVAC system are in good condition and keeping your yard and interior updated are other ways to ensure your equity grows over time.
Raising money is a smart move. Some methods require effort and others don’t. Regardless of how you acquired your equity, having more equity in your home will make your finances as a homeowner more secure.
Building equity in a home is a key part of long-term wealth and financial stability. Here are some tips on how to build equity in a home and what to consider before investing in a property:
Tips for Building Equity:
- Make Additional Payments : Making additional payments on your mortgage principal can help you pay down your loan balance faster, which increases your equity in the home.
- Take Advantage of Property Value Appreciation : Over time, properties tend to increase in value. Keeping the property in good condition and making improvements can help increase its value and, therefore, your equity.
- Refinance to a Shorter Term : Refinancing your mortgage to a shorter term can help you build equity faster by increasing your monthly payments and reducing the amount of interest you pay over time.
- Avoid Private Mortgage Insurance (PMI) Payments : If you purchase a home with less than 20% down payment, you may have to pay PMI. Once your equity in the home reaches 20%, you can apply to eliminate PMI to reduce monthly costs and increase your equity.
