5 Ways to Build Home Equity

One of the greatest gifts you can give yourself is the financial freedom that complete home equity provides. When you’re looking at your current liabilities–future mortgage payments or loans you’ve taken out for a down payment–achieving unencumbered interest might seem impossible. But with some time and a good amount of diligence, you can build your home equity to the rate of complete liberty from outstanding balances, liens, and interest rates. Follow these tips to expedite the process:

1. Let your home appreciate

The first thing you should think about when looking for a new home is its potential marketability. Homes located in up and coming neighborhoods, where home prices are constantly increasing are good places to start in your home search. Selecting a home is like buying stock: if the value of your home appreciates while you’re residing in it, your finances will benefit upon resale.

2. Elect for Shorter Terms

Homeowners who take out a 15-year mortgage build equity twice as fast as those who take out those lasting 30-years. Short term loans are key for owners who are set on building home equity, as, combined with fewer years of paying interest, they have more funds to allocate to mortgage or loan payments.

3. Increase Payment Frequency

Even if you have a 30-year mortgage, you can speed up the process to gaining full home equity by paying extra. It might seem obvious (and also unrealistic) to pay your loans and mortgage payments quicker, but scheduling payments every two weeks instead of once a month can significantly reduce your debt and go towards your equity at a quicker rate. A bi-weekly structure adds up to thirteen payments per year instead of twelve, saving you years of payment down the road. If you find that this method stretches your budget to its limit, try to send extra payments from time to time when your finances support it.

4. Consider Property Value

A home’s market value is one of the most important things in your equity calculation. Increasing your home’s value can significantly add to the amount of equity you acquire. Home improvements ranging from a simple paint job or floor replacement to larger kitchen, bathroom, or bonus room renovations, are a great way to increase property value. When making these improvements, however, make sure that their cost will create the added value you seek to gain in your home. Only undergo safe, widely appreciated renovations such as creating an open concept or replacing kitchen appliances with stainless steel to garner the best effects for your effort.

5. Make A Larger Down Payment

Perhaps the shortest remedy to building home equity is to put down a larger down payment. Of course, this is often unrealistic for most home owners, but a substantial payment will immediately go towards the portion of your home that you own in whole.

The best benefit of complete home equity is upon your decision to sell. Homeowners of an appreciated property will reap 100% of the resale profits. For example, if an owner bought their home for $300,000, achieved complete home equity on an appreciated home, and sold that home for $500,000, they would benefit from $200,000 in direct revenue from that sale. These funds could be reserved for retirement, or go towards a larger house for a growing family. Any way you put it, building home equity is one of the best things you can do for your future.