How to Build Home Equity
Before we dive into how you can build your home equity, let’s first review what equity is.
To put it plainly, home equity is the current market value of your home, minus what you still owe. As a homeowner, you should be constantly working toward getting a positive number out of this equation.
Owning a house is a lot like long-term investing. There’s no guarantee your property will stay at or increase its value, but if you take care of it, you have the opportunity to build equity. In short, gains will come from paying down the principal balance on your loan or the market increasing in your favor over time.
However, there are a few ways you can help your home gain equity.
The housing market can be an unpredictable beast. However, research shows that homes are more likely to increase value over time, with little action on your part, when they’re located in attractive neighborhoods or growing towns.
Before you even purchase your next (or first) home, consider the down payment needed versus the down payment that could save you thousands in the long-run. When you put down 20% or more from the start, you avoid Mortgage Insurance and lower your monthly payments. This will allow you to increase equity faster.
When it comes to home improvements, there are quite a few that just aren’t worth your time and money. If you’re looking at improvements to build your equity, you should take into consideration the upfront cost of the project and how you’ll fund it. It’s best to stay away from projects that will only drain your wallet, with a low Return on Investment (ROI).
Here are a few improvements that won’t break the bank but will help the overall appeal of your home:
Garage Door Replacement
- Average Cost:$3,611
- Average Resale:$3,520
- Cost Recouped:97.5%
Minor Kitchen Remodel
- Average Cost: $22,507
- Average Resale Value: $18,123
- Cost Recouped: 80.5%
- Average Cost: $16,036
- Average Resale Value: $12,119
- Cost Recouped: 75.6%
- Average Cost:$56,906
- Average Resale Value: $31,430
- Cost Recouped: 55.2%
- Average Cost:$20,420
- Average Resale Value: $13,717
- Cost Recouped:67.2%
If paying more each month on your mortgage is financially an option, then do it! You can also switch to biweekly statements or contribute a larger lump sum toward the principal balance after a big quarterly bonus or cash gift. You’ll pay off your mortgage quicker, which will help speed up the growth of your equity.
Maintain the Home
Although keeping up with routine maintenance can be costly (and tedious), it’s crucial to the value of your home. Leaks in the ceiling or growing cracks in the foundation could decrease your home’s equity over time. It’s best to work on these projects slowly over time, rather than all at once when you decide it’s time to sell.
Thinking about selling your house? Don’t do it alone! Our Mortgage Advisors are here to help!Equity, home loan, Improve, Mortgage, Payments, Remodel, repairs, Tips