Home Buying 4 Ways to Increase Your Home Equity

by Tara Mastroeni | August 03, 2023

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.

Save up for a big down payment

Believe it or not, you can start building equity before you even get the keys to your new home.

The down payment made when you close on a property determines the size of your mortgage. The larger the down payment the smaller your mortgage, and the greater the amount of equity you’ll have access to.

”Making a big down payment is smart, as long as it doesn’t totally drain your savings,” says Todd Huettner, president of Huettner Capital in Denver, CO. “It’s a balancing act between putting down as much as possible and making sure you still have enough funds to cover moving expenses and other unexpected costs.”

Huettner recommends saving up money strategically. Create separate savings accounts for your down payment fund and an emergency fund, then contribute to both regularly. 

Organizing the money in this way can help you be prepared for both the short term and the future.

Create separate savings accounts for your down payment fund and an emergency fund, then contribute to both regularly. 
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Make extra payments on your mortgage

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.

Invest in some home improvements

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. 

A contractor walks homeowners through plans for an addition.

Wait for your home to appreciate

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.

A couple construct a flowerbed on their property.
Tara Mastroeni

is a freelance real estate and personal finance writer. Her work has been published on Forbes and Business Insider. You can find her at TMRealEstateWriter.com or on Twitter @TaraMastroeni.