One of the main benefits of owning a home is that you can use it to reach a number of financial objectives. You can use your equity to fund a home renovation or pay off credit card debt with high interest rates.
When can you begin building equity on your home?
How much you intend to invest depends on your finances and the type of property. But the best way to increase equity in your house is to invest a lot of money and to keep paying.
Along with putting down large amounts of money, it is important to consider improvements on the property. The addition of an additional bedroom, renovations in the kitchen, and updating your bathroom will increase the value of the home.
Another way to build equity is by increasing your mortgage interest rates. By shopping around, you may be able to save thousands on interest.
Refinancing your mortgage into a shorter loan term can also increase the amount of equity you have built up in your home, though it will come with higher payments. Alternatively, you may be able to reduce your mortgage payment by a few hundred dollars each month by making biweekly payments or by paying more than the required minimum monthly payments.
You can borrow against the equity you have built up in your house at any time. You can borrow money by applying for a Home Equity Line of Credit (HELOC), a secured loan using your home as collateral. Or you can take out a Home Equity Loan to borrow from the equity in the home.
What is building Equity?
Building equity in a home is a process that can take years. Making regular mortgage payments is a way to build equity in your home while your property value increases and you reduce the loan balance. You can accomplish this through making a large down payment, reducing your mortgage interest rate, refinancing or utilizing other strategies to increase your home's equity and eventually sell the property for cash.
When you're ready to sell, the size of your equity can be a big factor in the price you'll get for your home. It will also impact how quickly the home can be sold and how much you walk away with.
You can also use it to pay for other life-events or emergencies. You can, for instance, use it to pay college tuition or medical expenses as you need them. You can even borrow from your equity to fund a wedding or a move into a bigger or more expensive house or a new business venture.
You should aim to have 15% to 20% equity in your house before you borrow. Mortgage lenders are more likely to allow you to borrow money if you have equity of at least 15%-20%.