How to Build Equity in a Home for a Brighter Financial Future
Buying a home is a huge financial purchase. Not only is it a commitment of a significant amount of money, but also it is a big investment. Ideally when someone goes to sell, they are able to make money on the sale and walk away with a nice profit. One way to do this is to build equity in a home before selling.
What is Equity in a Home?
Home equity is the difference between a home’s worth and how much someone still owes on their mortgage for that home. Essentially, the equity of a home is how much of it someone actually owns, and the more equity someone has the better.
As you pay off more of what you owe, you are able to build equity in your home. The equity of your home will also increase if the value of your house increases. On the other hand, the equity in your home can decrease if the value of your home decreases faster than you are able to pay down the mortgage’s principal balance.
Equity is important because it helps provide financial security for your future. You can borrow from your equity as a loan or invest that money. When you sell your home, the money from the sale will go towards paying off the remainder of what you owe on your mortgage before you get any money back. If you are able to build equity in your house before selling, you will have more money coming back to you after the sale.
How to Determine Equity in a Home
To determine the equity of a home, you need to know the value of the home as well as how much is still owed on the house. From here, you subtract the amount that is owed from the value to find the equity.
Let’s do an example. If the value of your home is $350,000, and you still owe $300,000 on your home, your equity is $50,000. In a few years, if your home value increases to $360,000, and you now owe $290,000, the equity in your home increased to $70,000.
How to Build Equity in a Home
Because equity can heavily impact financial health, building equity in a home is important. Especially if you are looking to sell soon, you want to increase equity in your home so you can walk away with more money in your pocket. Follow these tips on how to build equity in a home to help secure your financial future.
Increase Your Mortgage Payments
One way to build equity in a home is to increase the payments to your mortgage. So long as the value of your home isn’t decreasing, you are increasing the equity in your home every time you make a payment to the principal balance of your mortgage.
Even a little bit a month can go a long way in building home equity over time. If you are able to pay down your mortgage faster by paying extra, you will increase home equity while also decreasing the amount of interest you pay. Just be careful that there are no penalties for paying off your mortgage loan early.
Shorten Your Mortgage Loan Term
Along with paying extra toward your mortgage, another way to build equity in a house is to decrease your mortgage loan term by refinancing. Doing this means that your monthly mortgage payment will increase but more of your mortgage payment will go to the principal balance versus interest and other fees. As a result, you are able to decrease the amount that you owe on your home faster and build your equity.
Increase the Value of the House
One of the best ways to build equity in a home is to do some home improvement projects to increase its value. Especially if you are looking to sell soon, doing just some basic listing prep like painting, flooring updates, and hardware swaps is an easy way to build equity in a home fast, so you can increase the money you get back at the closing table.
The best part is this can still be a viable option if you are short on cash. Not everyone has extra money to throw at their mortgage or these home improvement projects, but we can help. At Curbio, we help homeowners make home improvements before selling with no fees due until closing. Homeowners can increase the value of their home and consequently, build the equity of their home before selling without having to worry about upfront costs.
Not only do we help lighten the burden of cost, but also we can help you determine the updates that will have the highest return. Our focus is on smart home improvements, so homeowners make updates that will get them the most money back at the closing table.
Your home was a huge investment; don’t let it go to waste. Understanding how to build equity in a home and actually building it are two different things. If you are ready to sell soon, let us help you build the equity in your home before you sell. Contact us to get connected with a partner real estate agent or talk to your agent about working with us.