One of the largest benefits of owning a home is the opportunity to build equity. Home equity is the percentage of your home’s value that you own, and is a crucial part in building wealth through ownership. Here are 5 smart ways to build equity.
5 Smart Ways to Build Equity
Make a larger down payment
If it’s possible, save to make the largest down payment that you can when buying a home. A higher down payment, means you own more of the home, and that amount can appreciate over time. Additionally with a higher down payment, you’re able to lower your monthly payments since you owe less on your mortgage than if you pay the minimum down payment.
Make bi-weekly payments
Make mortgage payments every two weeks if you are able to, since paying off your loan faster means saving that much in interest and is one of the smartest ways to build equity. If you make payments every two weeks, you can shave five to six years off of a 30-year mortgage. If you pay your mortgage every four weeks, this actually adds up to thirteen payments throughout the year instead of twelve. Make sure to talk with your lender to confirm this plan work for you and your financial situation.
Cut your loan term in half
If you can swing it, cut your loan term in half by taking out a 15-year mortgage instead of a 30-year mortgage. But doing this, you can build your equity twice as fast. It’s important to note, since you’ll be paying in half of the time, your monthly payments will be significantly higher, which may make it harder to qualify. But if you do qualify, strongly consider going this route for the equity aspect and since you’ll be paying 15 less years of interest.
Make home improvements
There are many people around the world buying homes, renovating and reselling. Why do they do this? To add value to the home. Now, simply changing one light fixture isn’t going to give you a ton a value, it’s the large home improvements that really make a difference. These home improvements include kitchen remodels, creating additional bathrooms, or adding an outdoor living space. It’s important to weigh the cost of remodeling and the percentage you’ll get back when reselling the home. For a full list of the highest renovations, visit here.
Use financial windfalls
Take advantage of work bonuses, birthday money, and family inheritances as a chance to pay down your mortgage. Over time you’ll be surprised what paying lump sums can do for your equity.
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