Owning a home is an exciting milestone in your life. It hits a lot of things with one stone. You get a comfortable place to live in, an investment, and a social status that people can admire. However, if you are paying a 30-year loan term and still in your first year, you can’t definitely say that you fully own it.
But you can increase your amount of ownership by building your equity. Simply put, the equity is the amount of your home that you actually own after calculating the debts, which include your home loan. To arrive at that value, deduct your loan balance from the market value of your property.
To increase your home equity, there are a few things you need to do:
Increase your monthly payments
If you have already made a down payment, the next thing that you will do is pay the mortgage based on the agreed number of months and years. When you pay more on your mortgage, you actually increase the amount of your ownership. You can add a couple of hundred dollars to your monthly payment; the next thing you know, you have a smaller balance remaining. If you have a windfall, use it to pay for your property’s principal. Switching to bi-weekly payments from monthly arrangements will add one extra monthly payment to your annual mortgage.
Make a large down payment
In case you are just buying a home, you might want to save up for a big down payment. Giving a large down payment will automatically give you large equity. For instance, if your property costs $250,000 and you have paid $75,000 for the down payment, you instantly get 30% of the homeownership. Doing this will also reduce your monthly mortgage payments. You can even get fewer interest expenses because you are shortening your monthly payments.
Shorten your loan term
If you anticipate that you will get a salary increase in the next few months or your new job will give you a handsome compensation package, you can consider shortening your loan term. Getting a 10-year or 15-year mortgage will speed up your ability to gain more equity. In the long run, you will save on the total interest. Refinancing your loan may also allow you to get a loan term with lower interest, a privilege that is often given to earnest payers.
Improvements and renovations can help you boost your home’s equity. This is because the expenses that you have incurred will be accounted for the equity’s value. This might also allow you to get a higher resale value. However, make sure that the upgrades you will have are actually functional and not hyper-specific or unique (the likes of Hello Kitty house), as the latter will make it difficult for you to sell your home.
Plan your finances well
Building your home equity is one goal that will also help you develop good financial habits. Through this, you will learn how to budget properly and make the right priorities. You will also be compelled to come up with practical plans for the future.