How To Build Home Equity

by Sweeney Hall Group 02/16/2020

Having equity in your home is an incredibly valuable thing. It allows you to borrow against your house and shows that the value of your investment is rising. Equity defined is the difference between your home’s value and the amount you still owe on the home. Equity allows you to move forward with other properties and sell your current one. 


As you pay down your mortgage, your equity increases. There is, however, always a risk of an equity slide where values drop a bit. There are a few ways that you can help your home’s equity value to increase faster.


Pay Towards The Principal


The first few years that you’re a homeowner, you’ll be paying a lot towards the interest and only a little towards the principal value of the loan. The quicker you pay down your home loan, the faster you’ll increase the equity of your home. Check your budget and see how much extra you may be able to pay. Then, talk with your lender to see if there are any pre-payment penalties. 


Complete Home Improvement Projects


You may not know that many home improvement projects can increase the value of your home substantially. There are many projects that you can complete in your home that won’t break the bank yet will give you a significant return. You can start simple, or think big. Some of the best home improvement projects that will add value to your home include:


  • Complete kitchen remodel
  • Replacing countertops
  • Refinishing cabinets
  • Installing new appliances
  • Replacing garage doors
  • Bathroom remodel
  • Putting on addition
  • Landscaping renovations


Any of these home improvement projects can add value to your home, bringing the equity value of the home up. Even if you’re not planning on taking out any equity in your home for some time, any improvement projects that you choose to do are beneficial for both you and how your home affects your finances.  


Increase The Amount Of Your Downpayment


You can increase the value of a home before you even buy it. If you put the traditional 20% down on a house, you’ll build equity a bit faster than if you put down a lower amount such as 3% or 5%. If you have already purchased your home, you can ask your lender to do what’s called a cash-in refinance. This type of refinance is where you bring cash to the refinancing closing table in order to lower the balance of your mortgage.