What is equity?
Equity is the amount of your home that you truly own.
- To calculate, subtract your outstanding loan balance from the current fair market value of your home. Estimate this value with online equity calculators and your estimated home value. To find the exact amount of home equity you hold, first have a home appraisal completed to obtain your home’s fair market value.
- Keep in mind that the equity in your home is fluid depending on the current value and what you have paid towards your original loan.
Using Your Equity
For most homeowners, the equity in your home is your most valuable asset. It is a major benefit of homeownership, and its significant financially to multiple people of different ages and stages. Every month as you pay your mortgage, you are putting away money into savings and don’t have a choice to do so or not. Your equity is a savings account for you, with a few different ways to put it to use. We advise that you seek advice from a financial institution or advisor prior to making any decisions with your finances or equity. Personal preferences and life events cause homeowners to make different decisions when using home equity. For instance, equity may be used towards a new home, renovation of a current home, retirement, or further education.
Ways to use home equity:
- After the sale of your property, request your equity in cash.
- When selling a current home and purchasing another, use your equity as a down payment for the purchase.
- Borrow the money in a home equity loan.
How to Build your Home Equity:
Overall, there are two ways to increase home equity. In order to grow equity, the home value must increase, and the homeowner’s debt must decrease. The homeowner can be active or passive in this role, depending on their personal circumstances. Naturally, your equity is expected to grow over time as you make monthly mortgage payments, and the market value increases.
Increase Property Value
- A home in a popular, growing area will appreciate over time. As home values go up, the equity does as well. Although the trend for home value over time is an increase, there is always change in the values of property. Home value is fluid depending on the market and surrounding neighborhood.
- Keep up with maintenance items to maintain the value of your home.
- Home renovations increase property value. Small and quality renovations give more value than cosmetic improvements. A larger renovation, such as an extra bathroom, expanded kitchen, or finished basement, provides more significant value.
- Landscaping, such as new plants and filling in areas of dirt, is less expensive way to add value. Additionally, this makes your home more attractive and desirable to potential buyers.
Decrease the Amount you Owe
- Pay more towards the principal by paying an monthly mortgage payment.
- Pay an additional mortgage payment each quarter. Additional payments go towards the principal balance. Be sure to check with your lender before making additional or different payments.
- Apply monetary gifts, bonuses, and other unexpected income to your principal balance.
- Round your monthly mortgage payment up. Even $50-$100 towards the principal balance adds up over time.
- First time home owners or potential home buyers should consider these ideas when purchasing a home.
- Larger down payments result in greater equity.
- A 15 year mortgage has a greater monthly payment. However, more money goes to the principal and builds equity at a faster pace.
**Seek advice from a financial institution, advisor, or professional before making any financial changes or decisions.