A Beginner’s Guide to Building Equity in Your Home
Home equity is one of the most common terms that you’ll hear floating around the real estate world. Likewise, it’s one of the terms that seems to excite homeowners the most and it’s easy to see why. To put it simply, home equity is essentially money that has been added to the value of your home since the purchase. For example:
- Purchase Price: $400,000
- Current Market Value: $475,000
- Equity Amount: $75,000
In this scenario you essentially have built up $75,000 of savings that you can access in a few different ways, such as:
- Cash Out Refinance Loan
- Home Equity Line of Credit (HELOC)
- Home Equity Loan
How do you build home equity?
There are multiple different ways you can try to build equity within your home, however there are a few ways that are more common, or even easier to do than others.
Rising House Prices
Arguably the easiest option is to simply sit back and wait for house prices to rise. As the market improves, the value of your home will rise, creating more equity than what you may currently owe on the property.
Whether with your regular monthly payment, or by overpaying on the principal of your loan, every payment you make lowers the amount you owe, thus creating a larger gap of your loaned amount vs. home value which boosts your equity.
When purchasing a home, the larger the down payment, the higher your equity will be. Larger down payments allow you to instantly have a higher amount of equity, in addition to saving on PMI, this is often the preferred method when it comes to purchasing a home.
Related: Value Decreasing Upgrades
Improvements and Maintenance
Because equity is in line with your home’s value, you can try to boost the value of your home with home improvements as well as regular maintenance. The higher the value of your home rises, the more equity you’ll have.
Many first-time homebuyers may fear that by purchasing a home they are putting themselves into a place of debt, and while you will generally be in debt due to your home loan, you also have a chance to get a huge return on your investment with the equity you are able to build in your home.
If you’re currently searching for a new home, are ready to sell your home and need a qualified seller’s agent to assist you, or if you have any further questions regarding Boston Real Estate, please feel free to contact our officeat any time.