What is Equity?
The equity you have in your home is the value of your home, less any loans you have on it. For example, if your home is valued at $800,000, you owe $300,000 on a first mortgage and don’t have a second mortgage, your equity is $500,000. There are two ways to increase your equity: increase the value of your home and decrease the amount you owe on it.
How to Increase Your Home’s Value
Over the long haul, property values tend to increase. Given the natural appreciation of real estate property value, there are several things you can do to increase your home’s worth. . Getting your home appraised and running ‘comps’ in the area will give you an idea of what the current property values are in your area and get a market assessment of the features that are increasing those value. Then, you can put together a plan to increase your property’s value.
This is part of the curb appeal. Clean up overgrown backyards, add a pool, add a deck or patio, repaint the home’s exterior, or add update landscaping. These are all ways to add value to your home’s property.
Maintenance and Upkeep
This may not be as sexy as adding a pool or converting an attic into a studio, but general upkeep and maintenance will help your home hold its value. Keep carpets cleaned, repaired and replaced. Replace and upgrade appliances. Clean tile and grout. Repaint walls. Maintenance and upkeep will prevent your home from being viewed as a ‘fixer-upper’ and hold its value.
Here are great ways to add value to your home:
Renovations include upgrades and additions. From room additions to converting non-livable space into livable space, you can increase the livable square footage. Additionally, upgrading flooring, the kitchen and other areas can add value.
Decrease the Mortgage Balance
The other piece to the equity equation is decreasing the loan balance(s) against the home. Just as a home will likely increase in value over time, your mortgage is likely to decrease over time as you make payments. But there are things you can do to accelerate the process and build more equity in your home.
Consider these options to reducing your mortgage faster:
Modify your loan to a shorter term. It’s possible you took out this mortgage a few years back when your income was a bit lower. You might be able to afford a larger payment and get that loan down to a 15-year term.
Make a Larger Down-Payment
You can hit the ground running with your equity by bringing a larger down payment to the table. There are considerations to be made, especially as it comes to the investment value of that cash. So, talk to your financial advisor and see if making a larger down-payment makes sense for you.
Accelerate Mortgage Repayment
Rather than restructuring your loan to a 15-year term, you can simply make extra payments. Some couples will allocate one partner’s salary (or portion) to the mortgage. When you come into extra, unplanned money — like bonuses, dividend payments, inheritance, gifts, etc. — throw that into the mortgage and build up that equity.
Let it Be!
As you build equity, it can be very tempting to use it as collateral for more loans — a second mortgage or a home equity line of credit, etc. Don’t fall to temptation if your goal is to build equity. Leave the equity alone and let it grow.
Real estate has always been one of the smartest and safest investments. With a good plan, you can build the equity in your home by keeping its value up with maintenance, upgrades, and additions. You can work on that mortgage balance by paying it off faster with extra payments. As you do that, you’ll see your equity grow and watch your dream home turn into your dream investment.