A house is a big investment, one you want to see grow in value. Building equity in your home is important for establishing a healthy financial future. A simple way to determine how much equity you have in your home is to subtract what you owe on it from the market value — the amount leftover is your equity.
So, how do you gain equity in your home? The truth is, building equity in a home takes time. There are factors that you can’t control — like the housing market — but there are some things you may be able to do to help increase the equity in your home.
15-year mortgage vs. 30-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. A lower interest rate for a shorter length of time, means you’ll save more of your hard earned money by paying less in interest. However, on a 15-year mortgage your monthly payment will be higher than on a 30-year mortgage. But you’ll save big in the long run and be on your way to building equity faster.
Make a larger down payment
If you make a bigger down payment when you buy your home, you’ll have more equity in it. And if you put down at least 20 percent, you won’t have to pay private mortgage insurance (PMI). Less fees means more money goes to paying off your home.
Pay down your mortgage faster
If you can make larger monthly payments, this may be a good option for you. 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. 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.
Buying 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 a lot of extra money to put toward building equity faster.
Make small home improvements
Investing some time and money into the upkeep, improve and update your home can be good strategies to maintaining and increasing the value of your home. Sprucing up certain aspects of your home can add value and equity, especially if you’re able to make the improvements on your own.
For example, if your kitchen is outdated and could use a little TLC, making improvements to update the look and functionality may add value. Consumer Reports says a “modern/updated kitchen” was at the top of the list of most important home features in their survey of millennials. Maybe 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.