If you own a home, your monthly mortgage payments can help you build up a valuable asset known as home equity. Home equity is the value of a home that you own outright and can grow over time.
This is a critical move because it can be used to cover unexpected expenses. But first, you must figure out where you stand financially and in terms of equity so you can determine the best decision for your loan.
In the long run, knowing how to build equity allows you to create a long-term asset. Read on to discover and learn more about raising your property’s value with home equity.
The Importance of Building Equity in Your Home
Increasing your home equity is important for a number of reasons. It can help you accumulate wealth and keep your home while you are a resident. Home equity entails the following:
- Almost anything can be done with equity. Home equity loans and home equity lines of credit (HELOCs) can be secured with the use of a home. A loan provides you with the entire amount right away and requires you to repay it over the course of 30 years. A line of credit has a draw period of up to ten years during which funds can be withdrawn as needed for a fee of only interest. Your repayment period (typically ten to twenty years) includes both interest and principal.
- Profits will be generated from the home’s sale. You don’t want to be “upside-down” in a mortgage, owing more than the property is worth. When this happens, the only way to sell is through a short sale. Accumulating equity is required to sell the property profitably.
- You have the potential to amass wealth. During a buyer’s market, accumulating equity in your home can help you accumulate wealth over time. One of the few assets that can appreciate in value as you pay down the mortgage is a home.
How to Raise Your House’s Value
You can boost your equity by increasing the value of your home or lowering your mortgage debt. Here are a few ideas to get you started:
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Make a sizable down payment.
Your down payment starts the process of accumulating equity. Depending on your mortgage options, you can put down as little as 3% or as much as 0%, but putting down a larger amount immediately increases your equity. You can avoid paying PMI if you make a 20% or greater down payment.
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Boost the property’s value.
Improving the value of your home can raise its value and, as a result, your equity. Consult a real estate agent before beginning your next project. Consider how much the home improvement project will improve your overall quality of life.
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Lenders charge a fee.
The majority of mortgages are amortized, which means they are repaid in equal monthly installments until the loan is paid off. While you will always pay both principal and interest, the interest portion will always be larger at first, and the principal portion will eventually be larger. Making extra monthly principal payments speeds up the process of accumulating equity by lowering the total amount owed.
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Shorten the term of your loan.
Shorter mortgages allow you to accumulate equity faster. If you already have a mortgage, you can refinance. However, short-term loans have higher interest rates. Before refinancing, make sure you can afford the higher mortgage payment.
Conclusion
In short, if you have enough equity in your home, you can borrow money with a home equity loan or a home equity line of credit. You can increase your equity by increasing your down payment, increasing the value of your property, or simply making a larger monthly payment.
Now that you’re more knowledgeable about the importance of home equity and increasing the value of your property, you must then discuss with a professional to help you assess how you can financially qualify for your next move. This way, you can make guided and informed decisions!
Are you looking for property management services in Florida? Orlando REO Professionals take pride in offering great investment property and wealth management advice, as well as monthly inspection and BPO grades. Allow us to be your first choice for Florida real estate investment. Call us at (407) 247-8559 today!