Building equity in your home is an investment in your financial future.
Equity is the portion of a home that you own outright. It's the difference between your home's current value and the amount owed on your mortgage.
Once you've built up enough equity, you can leverage it to help cover large expenses. For example, a HELOC home equity loan can be a cost-effective way to access funds — for, say, a home renovation — compared to using a credit card.
With that in mind, below are four tips to help you build up the equity in your home as soon as possible.
After you've moved in, one of the most efficient ways to build equity is to make additional payments on your mortgage. Extra payments will help decrease your loan balance faster and increase the amount of available equity.
"It doesn't have to be a lot of money," says Huettner. You can pay $20 or $50 extra every month, plus more whenever you experience a windfall. Even little additions will add up over time to make a difference."
Making additional payments generally works in the same way as the regular, monthly payments. You may need to specify that excess funds be applied to your principal loan balance. This will ensure that the money gets applied to the amount you owe on the home and won't be put toward other expenses.
Increasing a property's market value, particularly with home improvements, is another way to build equity.
It's important to note that home improvements are not the same as regular maintenance and upkeep. "When you want to add value, you have to do more than just replace the carpet," says Huettner. "Often, adding square footage is the best way to do it. After that, it's renovating kitchens and bathrooms."
Keep in mind that every renovation is different, so the amount of value you'll add to your home by renovating will differ. Automated valuation calculators can offer you a broad sense of what your home might be worth post-renovation, but the most accurate valuations will come from an appraiser.
Although not the quickest option, you can also wait for your home to appreciate. Real estate values tend to rise over time and any increase in value leads to added equity. Of course, the increase in value and the amount of time that takes to appreciate is dependent on the housing market.
Nationally, the 2022 Core Logic S&P Case-Shiller Home Price Index found that, when adjusted for inflation, houses that were worth $178,000 in January 1990 appreciated to become worth $308,000 in January 2023, on average.
"The longer you live in the home, the better chance you have of good appreciation, especially if you keep it well-maintained." says Huettner.
Whether you're saving up for a down payment or making additional payments on the home you own now, you're on your way to building up equity — and getting closer to reaching your financial goals.
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