As a potential or current homeowner, you undoubtedly are interested in building equity in your home. Your home equity is the value of your home above what it is currently mortgaged at, and it gives you peace of mind and security that your investment in your home was solid and that you have that value to tap if need be. Everyone wants more home equity, but many are unsure how to go about growing it. It turns out that there are several ways to build your home equity quickly. These steps, taken before you even purchase your home, will ensure that you maximize your home’s equity potential!
1. Opt for a 15-Year Mortgage.
First of all, you can opt for a 15-year mortgage instead of a 30-year loan. You might be thinking that this is impossible because the monthly payment for a shorter-term, mortgage would be double the amount, but this is not true. According to the Go Homeside blog: “if you purchase a $200,000 home at 3.8% interest for 30 years, the monthly payment (excluding taxes, insurance and PMI) will be around $932. Calculate the same mortgage amount and interest rate with a 15-year term and the payment increases to $1,459. This is a difference of $532.” Maybe an extra $500 a month simply is not in your budget. But, if you can, a shorter mortgage term will help you eliminate debt faster and build equity in your home.
2. Put Down a Larger Downpayment.
Also on the topic of home-buying, know that you can build equity faster with a larger down payment. While it’s true that some FHA loans have down payment requirements as low as 3.5% and it can be tempting to keep your cash in your pocket, you will build equity fastest with a larger down payment… think the traditional twenty percent. This will make the amount that you are financing lower, and will make your equity higher from the get-go.
3. Pay Extra on Your Principal.
Once you have purchased your home, consider paying extra on your principal. Experts have proven that making one extra principal payment a year can knock seven or eight years off the life of your loan. Scraping together an extra payment can seem staggering, but not if you spread it out over the twelve months of the year. If your mortgage payment is $1,200, you can divide that by 12 and pay just an extra $100… not so bad, right? This will help pay down your loan faster and help build equity in your home!
