How to build equity in your home

For many years, homeowners would use the equity in their home to buy things- they would refinance and take out cash to pay off credit cards, cars or maybe do some home improvements.  Then the housing market crashed and many people were under water – owing more than their home was worth. 

Now we are seeing people talk about increasing their home value to have more equity. Rather than mortgaging your home to the max, people are looking at paying down their mortgages and gaining equity.  

What are some ways you can increase your home equity?  How do increase the value of your home?

-Rising home prices – as home prices increase, your value goes up. This is usually one of the fastest ways your equity will increase.  However, if we see another down turn, it can quickly eat up the equity you gained.  

-Paying your mortgage – Each month you make a house payment, you are paying something towards your principal balance, slowly gaining more equity in your home.  If you can pay extra, it will increase your equity that much faster.  Paying an extra house payment every year can cut about 7 years off your mortgage!

-Biweekly payments – some people like to set up biweekly payments so they make lower payments every two weeks. By doing this, you are making one extra payment each year. That can help save thousands of dollars in interest.

-Consider shortening your mortgage term– if you refinance your loan from a 30 yr to a 15 yr loan, you will pay off your mortgage that much faster.  This is a quick way to gain more equity. You may also want to look at keeping your current loan (depending on your interest rate) and paying the equivalent of a 15 yr payment – that way you will still pay your loan off in 15 yrs, but if there is an emergency, you are not stuck to the higher payment.

-Home improvements – some home improvements will increase the equity in your home. Some may be considered normal maintenance, but updating a kitchen or bathroom, maybe updaing lighting or countertops can increase the value of your home. Normal maintenance is also helpful, once you go to sell your home, you will be able to tell who has taken care of their home over the past few years. Curb appeal can also help – making sure your yard, driveway, sidewalks are all in good condition, clean up your gardens, all of this will help draw buyers to your home when you are ready to sell your home.

-Bigger down payment – When you buy your home, putting more money down can help you. It can help you avoid mortgage insurance, lower your payment and possibly help you get a lower interest rate.  Maybe you didn't have the money for a large down payment but now you have a large sum of money that you have saved. You may be able to do a principal reduction and have your mortgage reamortized.  There may be a small charge but it's one way to help increase your home equity.

By doing some or all of these things, you will increase your equity so that at some point you may be able to pay off your mortgage. Or when you are ready to sell, you can have more money to put towards your new home!  And if the market does drop like it did a few years ago, you will be more secure in knowing you have a larger amount of equity in your home and you won't be upside down!

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, Inc, AnEqual Housing Lender, NMLS#150953 - Email - Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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