There are few experiences more exciting in life than buying your first home. Not only do you get to have a special place to call your own, but you’re also making a great financial investment that can benefit your future.
If you’re in the midst of the homebuying process or have recently become a new homeowner, you may be wondering about home equity. Equity is a valuable resource because it can give you access to additional funds.
Below, we’ve shared some tips that can help you build equity fast.
Tip #1: Pay More on Your Mortgage
Mortgage payments include both interest and principal. Typically, a more significant portion of your payment goes to the interest in the beginning, and more goes to the principal over time. Paying down the principal decreases the amount you owe.
So, if you can afford to, you may want to consider making bigger payments on your mortgage than you have to. Doing so decreases your unpaid loan balance faster, and in turn, increases your equity.
If you choose to do this, make sure that the additional funds you are paying go to cover the principal and not interest.
There are many ways to make extra payments on your mortgage. This can include adding a certain sum to your monthly payments, making one extra payment each year, or using additional funds like tax gifts and refunds.
Tip #2: Put More Money Down
The more money you put towards your mortgage, the more equity you have. Therefore, when you make a larger down payment, you have more equity to begin with. So, if you can, put more money down. Also, if you put down 20%, you will not have to pay PMI (private mortgage insurance).
Tip #3: Refinance to a Loan with Shorter Terms
Refinancing to or choosing a loan with a shorter duration can help you build equity. Typically, shorter loans have lower interest rates. This is why people sometimes opt for a 15-year mortgage instead of a 30-year loan.
When you have a loan with a lower interest rate, a more significant share of the payments you make goes to the principal amount. This, in turn, increases the equity that you gain each month.
However, it’s important to keep in mind that shorter loans have higher monthly payments. So, you will need to make sure you have room in your monthly budget for this option.
Tip #4: Invest in Renovations
Home improvement and remodeling projects can significantly boost your equity. This is because they raise the value of your home. Equity is determined by what you owe versus what your home is worth.
Have Questions? We’re Here to Help!
If you have questions about building equity or buying your first home in general, we’d be happy to help. Call Mortgage Solutions Financial today to speak to an expert and get the information you need.