Building equity in your home is one of the primary benefits of homeownership and can be used for a variety of financial goals. You can use this money to pay for major home improvements, eliminate high interest credit card debt or cover college costs.
When should I start building equity for my home?
Your financial situation will determine how much you invest in the property. The best way to build equity is to pay a substantial amount of money down on the price of your property, and then continue to make payments.
Investing in the improvements of your property is a good idea, along with placing a substantial deposit. The addition of an additional bedroom, renovations in the kitchen, and updating your bathroom will increase the value of the home.
A higher interest rate on your mortgage can also be a good way to increase equity in your house. By shopping around, you may be able to save thousands on interest.
You can increase your equity by refinancing into a shorter mortgage term, even though the payments are higher. You may also be able reduce your monthly mortgage by a few hundreds of dollars if you make biweekly payments, or pay more than the required minimum.
It can take time to build equity in your home, but it is a valuable asset that you can tap into at any time. You can do this by taking out a line of credit for home equity (HELOC), or a secured home loan, that uses the house as collateral. Or, you can apply to borrow using the equity you've built up.
What is building Equity?
The process of building equity can take several years. It involves making regular, consistent mortgage payments while the property values increase and lowering your loan balance. This can be achieved by making a substantial down payment, decreasing your mortgage rate, refinancing, or using other strategies to increase the equity of your home and ultimately sell it for cash.
When you decide to sell your home, your equity will play a major role in the final price. It will also affect how quickly you can sell the home and how much you'll walk away with.
Your equity can be used to fund other life events and emergencies. You could, for example, use your equity to cover college tuition and medical expenses if you are in need. You could even borrow against your equity to pay for a wedding, move into a larger or more expensive home or fund a business venture.
You should aim to have 15% to 20% equity in your house before you borrow. It's true that most mortgage lenders want you to have a certain amount of equity in order to be able borrow against your home.