How to Build Equity in Your Home

by | Apr 7, 2022 | HELOC, Home Equity, Home Equity Loan, Home Loan, Mortgage Loan

What is Home Equity?

Home equity is the portion of your home that you own. It is the principal value of your home that has been paid off. When you purchase a home and secure a mortgage, there are several ways you can establish and build equity in your home.

Why Build Equity?

Think of the equity in your home as a forced savings account, one that can financially benefit you in a number of ways. There are several ways you can tap into this equity while you own your home. You can refinance your home with a cash-out refinance home loan, secure a home equity loan, or a home equity line of credit (HELOC).

A cash-out refinance puts a large sum of cash in your possession based on the equity you have built in your home, while your monthly mortgage payments do not increase and you do not accumulate a second mortgage or loan. Home equity loans and HELOCs function similarly, except both of these work as secondary loans.

Having equity in your home can benefit you while you own the home, but it benefits you the most when you are ready to sell your home and upgrade. The more your home has appreciated in value and the more equity you have in your home when you are ready to sell it, the more cash you receive when you sell your home.

How Can I Build Equity In My Home?

There are a number of ways you can build equity in your home.

  • Make a Large Down Payment – The larger down payment you make on your home, the more equity you will immediately have in your home. If you make a 20% down payment on your home, the equity in your home has already appreciated by 20% as soon as you purchase it.
  • Increase the Property Value – You can also increase the property value by making upgrades to your home. Replacing and updating windows, the roof, utilities, landscaping, etc.
  • Pay More On Your Mortgage – You can increase your equity by making one extra mortgage payment a year or making biweekly mortgage payments, if your lender allows this.
  • Refinance to a Shorter Loan Term – Refinancing to a 15-year loan term as opposed to a 30-year loan term is one way to instantly get a large amount of equity in your home. However, this will mean larger mortgage payments as well.
  • Wait for Your Home Value to Rise – Typically, your home will appreciate in value over time due to inflation and the increasing value of neighboring properties.

Contact a Loan Specialist

Are you ready to invest in real estate? Or are you a homeowner ready to refinance your home? The first step is getting pre-approved for a home loan! The loan specialists at VeteransLoans.com can determine your loan eligibility and get you pre-qualified in a matter of minutes. Call 1 (888) 232-1428 to speak with a loan specialist today!

 

 

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