Home Equity is a subject in the news a lot right now, as rates continue to hover near all-time lows and your home value skyrockets. There is currently over $10 Trillion in equity on mortgaged properties, with as much as $6 Trillion in “tappable” equity.
Tappable equity is the total amount of equity that a homeowner that has a mortgage can borrow against before they reach the maximum loan-to-value ratio of 80%.
But the question is: how to build home equity? Building home equity can be accomplished in a variety of ways, from the patient to the quick. There are many ways to build home equity that you can use for cash out refinances and to fund future projects or pay off credit cards.
Your home value increases – during times like these, when the market is red-hot and home values are rising quickly, you’ll gain equity in your home just by the value rising.
For example, if you have a home worth $100,000, which then rises to $150,000 in ten years, you’ll have $50,000 more equity.
Paying down your mortgage – paying your mortgage balance pays off some principal and some interest, and every one of those payments gains you some home equity.
Make bigger payments – if you make your mortgage payment bigger, with the larger amount going towards principal, your mortgage will get paid off faster and you will gain more equity each month. You can also make biweekly mortgage payments, making 26 payments through the year. You’ll cut down your mortgage term and save interest, but also build some serious equity.
Shorten your mortgage term – refinancing to a shorter-term mortgage can have many of the same effects. Cutting the term down to a 15-year mortgage increases your payment size, but also increases the equity you are building.
Make home improvements – Adding value to your home by improving it can also increase your home equity. If you’re intent on building equity through improvement, make sure that the improvement’s expected value exceeds the costs
This is one of the only things you can do for free, if it’s something you are willing (or able) to do yourself.
Maintenance – keep your home in tip-top shape and you will be rewarded when it comes time to sell. If you can unload it for more as a result, you’ve essentially created more equity in your home. This also means that you need to keep up maintenance and curb appeal for your home.
Letting your home fall into disrepair or unattractiveness can lower the sale value and eliminate the equity you have built over the years.
Make a bigger down payment – When you buy the home, making a bigger down payment on the home starts you out with equity. This means you can get a lower loan-to-value ratio, and you can get a lower interest rate, eliminating PMI in many cases.
Rent out the property – you can use the rent you collect from the tenants to build equity by using it to pay off the home more quickly than you would.
As you can see, the equity in your home can be built in a lot of ways that don’t just depend on hoping that your property value continues to rise. You can actively build equity in your home that you can use to get better rates in a refinance or pay off credit cards or other high-interest bills.
Call the best mortgage lender, The Home Loan Expert Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, Nashville at (615) 810-8555 or Birmingham, AL at (205)721-7656. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower mortgage rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?