Three Smart Ways to Increase Equity in Your Home

Unlike expenses like cars, food, and entertainment, a home is the one thing we invest money in that actually has the potential to increase in value the longer we own it! It’s important to really think about that for a minute. Someone who drove a new car off the lot two years ago now owns a vehicle that’s worth a fraction of what they paid for it. By contrast, a person who purchased a home two years ago has probably seen the value of their asset increase pretty noticeably.

That’s why it’s important to think of your home as a financial vehicle for helping you to live your dreams. As you own a home longer, equity begins to build up that allows you to actually use your investment to convert your homeownership status into cash. People commonly use equity to get lines of credit to do things like finance home additions, pay for college, or help fund retirement.

Before discussing how to increase equity in your home, it’s important to establish a simple working definition for equity. Your home equity is simply the difference between the present market value of your home and the principal balance on your mortgage(s). To find your equity, just subtract what you still owe for a mortgage from your home’s current market value. The only way to increase equity in your home is to increase the chasm between your home’s value and your mortgage balance. You have a few different approaches to use that focus on adjusting your home’s value or your mortgage total. Let’s explore three smart ways to get there!

Tip #1: Go as Big as You Can With the Down Payment

If you’re currently hunting for a place where you can put down some roots, consider bulking up your down payment to start with substantial equity in your home. While it’s not usually required to put down 20 percent to get a home loan these days, you may want to consider striving for that goal if you’re focused on equity. Of course, it’s not necessarily better to wait until you can get that full 20 percent before buying a home if you’re already in a position to get approved for a loan because there’s always the potential to get frozen out of the market if conditions change. However, you should keep in mind that any little extra effort you push toward a down payment will come back to you as equity.

Tip #2: Make Home Improvements

Put on your fixer-upper mindset if you’re fixing to cash in on equity sooner instead of later. Remodeling or improving a home can pay off handsomely when it comes to boosting your home’s value. Of course, it helps to keep perspective about the cost of renovations versus how much you can realistically improve the value of a home. Don’t assume that a renovation you consider to be a value-adding touch will actually increase a home’s value from the appraisal standpoint. It can be really helpful to speak with a real estate agent about the home improvements that will increase market value before you invest too much in low-return renovations.

Tip #3: Play Around With Your Mortgage

If you already own a home, the way you manage your mortgage could help you to get on the equity fast track. If you’re in the position to do, consider refinancing to a loan with a shorter term to build more equity every month. The trade here is that your monthly payments will rise. If you’re looking for a way to use your mortgage to build equity faster without refinancing, consider making extra payments for just your principal each month. Some people like to get on schedules where they are making half-sized biweekly mortgage payments instead of monthly mortgage payments because this allows them to add a full extra payment each year without much pain. Others prefer to add something extra every month from wherever they can find room in their budgets. You may even want to just throw extra money toward your principal whenever you get a work bonus, tax refund or gift.

Final Thoughts on Boosting Equity Painlessly

While these tips can all help you speed up your equity timeline, the truth is that equity often simply builds passively. Just being patient about waiting for home prices to rise is the way that millions and millions of Americans have used their homes to finance everything from their business dreams to their retirements! Once you are ready to sell your home, contact Stevens Realty! As top Arizona Realtors, we work hard to help people reap the benefits of homeownership for a lifetime.