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How to Build Equity in Your Home

A house is a big investment, one you want to see grow in value, and building equity in your home is important for your financial future. A simple way to determine how much you have is to subtract what you owe on the house from the market value — the amount left over is your equity.

But how long does it take to build equity? The truth is, it takes time. And there are factors that you can’t control — like the housing market. But these five tips can help increase the equity in your home. 

1. Choose a 15-Year Mortgage

Choosing a 15-year mortgage instead of a 30-year mortgage can increase your equity because you’ll pay a lower interest rate and for a shorter amount of time. This means you’ll save more of your hard-earned money by paying less in interest. Do know, however, that on a 15-year mortgage your monthly payment will be higher, but you’ll save big in the long run and be on your way to building equity faster.  

2. Make a Larger Down Payment

If you make a bigger down payment when you buy your home, you’ll have more equity in it. Larger down payments will give you a smaller mortgage loan balance, creating additional cushion that will let you keep building equity when market value slips. And if you put down at least 20%, you won’t have to pay private mortgage insurance (PMI). Less fees means more money goes to paying off your home. 

3. Pay Down Your Mortgage Faster

If you can make larger monthly payments, you can build equity faster. It’s a good move for two reasons: You’ll be on your way to paying off your mortgage early and the extra amount will help build equity in your home. You’ll also save more in the long run by relieving yourself from paying more in interest. Even bumping up your monthly payment by a few hundred dollars can go a long way to paying down your mortgage faster. But be sure the extra payments are set to go to the principal. 

4. Pick the Right House

When you’re searching for the “perfect” house, it’s important to consider factors that could cause equity to grow at a slower rate. For example, if you buy a house at the high end of your budget, you may not have extra money to put toward building equity faster. Avoid any large losses you might incur as a result of choosing a home in a less desirable neighborhood, missing payments or repeatedly taking out loans.   

5. 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. Be strategic: Sinking a large amount of money into home improvements doesn’t always pay off. 

Protecting Your Home

With all the time and money that goes into owning and improving your home, you’ll want to know it’s properly protected. Your local Farm Bureau agent can help ensure you have the right coverage to protect your home because it’s not only a financial investment, but also a sentimental one.