We often hear people say “Owning a home is one of the best investments you can make!” but what does that really mean? They’re referring to your home’s equity, which is a major financial tool that offers security and can be used in many ways. Equity fluctuates over time, and there are methods to build your equity.
Home Equity Basics
How do you calculate your home equity? You’d simply subtract what you owe on your mortgage from the market value of your home. Say you owe $200,000 on your mortgage and your home is worth $550,000, your total equity is $350,000. Your home equity increases as you make your monthly mortgage payments or if the value of your home boosts depending on the market. You can get a free and instant home valuation here.
Ways to Build Home Equity
- Make a large downpayment. The more you can put down, the better! This will immediately decrease the amount you owe on your mortgage, thus increasing your equity.
- Bump up your principal payments each month. A little goes along way, try increasing your principal payment by just $100 and see what happens.
- Get comfortable. If you stick around you might notice your home value start to appreciate. Five years minimum is a good amount of time to let the market do the work.
- Make upgrades to your home! If you like DIY, now’s your time to shine. Home improvements can increase the value of your home, which increases your equity. But be careful, some home improvements can actually lower the value of your home. Learn more here!
Uses of Home Equity
Did you know you can actually use your home equity? If you own a home right now, the odds are you have a good amount of home equity. If you have at least 50% equity in your home, you’re considered “equity-rich”. You can use your home equity to help with college tuition, support a home renovation, consolidate your debt, and even plan your retirement! Planning on moving into a larger home? You can use your home equity to put down a sizeable downpayment on your next home, which will result in a lower mortgage and principal payment.
If you have any questions about your home equity, our team can help! Fill out the form below or give us a call at 562-896-2456.