One of the major advantages of being a home owner is the building of equity. Home equity is the percentage of the value of the home that you actually own. There's a way to build that equity faster, without breaking the bank, so that you can access that equity when you need it.
How much equity you have is easily calculable when you first buy a home because it is basically equivalent to the amount of your down payment. So, the percentage of the down payment is also the amount of your equity.
It's common thought that a 20% down payment is required for any home purchase, but in the industry, the average percentage of the downpayment for a first time home owner was only 8%. This is a small start, but it can grow quickly if you choose to focus on building your equity.
Your home can create wonderful wealth for you, if you have the time and the money to invest in it. Here are six ways you can go about building:
1. Let Your Home Appreciate
Building equity through appreciation takes time, no matter what. But depending on the market, and with home prices increasing as they have been in recent years, appreciation has been a boon for many home owners.
"Zillow research indicates that the median home value grew from $185,000 in April 2016 to $216,000 in April 2018. If you bought a home for $185,000 in April 2016 with a down payment of $12,950, your beginning 7-percent equity would have grown to 23 percent by April 2018."
2. Make a Bigger Down Payment
Sometimes waiting to save extra money for the downpayment can go against your financial interests because you lose the opportunity to build through appreciation. So, you must strike a balance among down payment, monthly budget and savings for other priorities.
Lenders will allow you to spend between 40-48% of your income on home payments and bills, which is a bit on the tight side for most. So allow your budget to truthfully decide if its better for you to save more cash first, or make the swift move toward equity.
3. Use Financial Windfalls Wisely
Take advantage of work bonuses, family gifts and inheritances to pay down your mortgage. If you do pay down in lump sums, see if your lender will recalculate (or “recast”) your payment based on the new, lower balance.
4. Make Biweekly Payments
Make mortgage payments every two weeks instead of once a month. Over the course of a year, this will add up to 13 monthly payments instead of 12. You’ll build equity faster and shave five to six years off a 30-year mortgage. Just make sure your lender isn’t charging extra for processing semi-monthly payments.
5. Cut Your Loan Term in Half
If you can take out a 15-year mortgage rather than a 30-year mortgage, you will build equity twice as fast. Simple as that. The issue that you might run into here is that you’ll have a significantly higher monthly payment and, because of that, it may be harder for you to qualifying, but it's worth a shot if the calculations all add up for you.
6. Make Useful Home Improvements
There are a whole long list of money-sucking home improvements that are unlikely to increase the value of your home when you well. It's really only the big improvements like a new kitchen, additional bathroom that will add meaningful value. Make sure that the cost of any improvements you make will create the added value you’re looking for.
Once you've built up your equity, you will be able to use that money for new investments or upgrades to your life by borrowing money against your home, or of course, by selling. But of course, once you make the move to Start Living in Ukee, you will want to stay for as long as possible, because this is an amazing place to live!
