How to Build Your Home Equity

Building home equity is important. It’s your financial stake in your house and since it’s considered an asset, you can use your home equity to finance your kid’s college education, remodel your current house, buy another home or supplement your retirement savings. If you’re wondering how to build your home equity, check out these tips.

Make a Big Down Payment

Your home equity represents how much of your home you actually own. If your goal is to build as much equity as you can in a short span of time, you can opt to make a large down payment. Industry standards generally say that homebuyers with conventional loans should put down at least 20%, particularly if they want to avoid paying private mortgage insurance. That means putting down even 21% can increase your home equity more quickly.

Refinance to a Shorter Loan Term

A refinance can offer another opportunity to build equity. By refinancing your 30-year mortgage to a 15-year loan, you can finish paying your mortgage off in half the time and enjoy the benefits of having access to plenty of home equity. But since you’ll be speeding up the payoff process, you’ll be paying more money every month.

And keep in mind that a refinance isn’t guaranteed. To qualify, you’ll likely need to have good credit, a certain amount of equity already and a low debt-to-income ratio. Checking your score ahead of time will let you know whether you need to beef up your credit before applying.

Pay More Than You Need To 

Another way to build equity is to go above and beyond what your lender expects of you. For example, instead of making a $1,000 monthly payment towards your mortgage, you could take it up a notch and pay $1,500 every month. If that’s not possible, you could try to make just one additional payment per year. It’s important to ensure with your lender that the extra money will go toward paying down the principal.

With your extra payments, you’ll be able to pay off your mortgage more quickly, build equity much faster and potentially save hundreds or even thousands of dollars in interest. That excess cash could then go towards paying off other loans or saving for retirement.

Make Small Home Improvements 

Investing time and money into the upkeep, improvement and update of your home can be a good strategy to maintaining and increasing the value. Sprucing up certain aspects can add value and equity, especially if you’re able to make the improvements on your own. For example, if your kitchen is outdated, making improvements to refresh the look and functionality may add value. You can start by looking at a smaller investment like replacing appliances, countertops or painting.

Fortunately, there’s more than one way to build home equity. So, if paying off your mortgage early isn’t possible, you can make budget-friendly adjustments or try to refinance. As your equity interest rises, you’ll be able to tap into it and potentially use that cash for other financial goals.

If you have questions and you need help, please contact us.
American Star Mortgage has helped many first-time homebuyers across Southern California find the perfect home loan. With years of mortgage experience, our team prides itself on assisting our clients in understanding all the elements of the refinancing process. Contact us at (844) 880-6296 or email us at [email protected].