One of the biggest investments you will make is your home. While it may look financially daunting in the beginning, it can end up being one of your most rewarding assets. Equity is the percentage of your home’s value that you own. The more equity you have the more wealth you are building through your home, especially since homes tend to grow in value over time. The good news is that you don’t have to break the bank to build equity, as long as you are smart…and patient.
Here are five ways to build wealth with your home. Talk to a lender or an experienced real estate agent to find out what works best for you.
- Be patient – Let your home appreciate.
Depending on the market, your home will grow in value fast or slow. Regardless, if you are patient, you can build equity through appreciation. Recently, home prices have been on the rise. Many home owners have seen the benefits of this by seeing their equity increase at a faster rate. Letting your home appreciate will take time. The markets will rise and fall, as is always the case, but in the long run, your home’s value will rise. Sometimes it looks appealing to sell your home when the market is up, but unless you plan on moving to a different real estate market, you may not see the benefits of the equity you built due to other new potential homes you may invest in being worth more as well. So, stay put for a while and let your home’s value grow.
- Make a bigger down payment.
Obviously, the less you owe on your mortgage loan, the more equity you have in your home. Making a larger down payment in the beginning will increase your equity immediately. However, if you are waiting to buy a home to save for a bigger down payment, you may lose the chance to build equity through appreciation. Find the balance among your down payment, monthly loan payments, and your budget and do what works best for you in the long run. A good lender can help you understand the market and interest rates better so you can make a more informed decision.
- Pay biweekly.
You may have heard this already, but it’s still worth mentioning here. Pay your mortgage payments every two weeks instead of once every month. As long as your lender doesn’t charge you for making two payments a month, you will build equity faster over the course of your loan. This happens because you end up paying thirteen month’s worth of payments over the course of twelve months, saving you five to six years’ worth of payments on a thirty-year loan.
- Choose a shorter loan term.
If you can, take out a fifteen-year mortgage instead of the more common thirty-year mortgage. You will pay off your mortgage loan and build equity twice as fast. This is a great choice if you live in a consistently well performing market. However, there can be a downside to this as well. Your monthly payments will be considerably higher, meaning you must have the budget to be able to handle it. If not, you will have a hard time qualifying for this type of loan.
- Improve your home with upgrades.
While building home equity through appreciation is a great idea, over time things within your home may get outdated or worn out. Making home improvements is a great idea, especially if you are planning on selling your home soon and cashing in on the equity you’ve built. Keep in mind, though, that you may have to make significant improvements to add real value to your home. These include renovating your kitchen or bathrooms, replacing flooring, or remodeling your home. Be sure to weight the costs of doing such improvements to determine if they will create enough value to justify the cost.
Are you ready to buy a new home and start building equity? Do you want to cash in on your home’s equity and sell your home for top dollar? Either way, I can help you get the most bang for your buck. Let’s talk and get you started on the path to wealth building with your home.