6 Ways to Build Home Equity

Your home equity represents your financial stake in your property and is considered to be one of the most valuable assets a person can have.

With that being said, building home equity is incredibly important for any homeowner and comes with a wide range of benefits that are useful to be aware of.

The Benefits of Building Home Equity

Not only does building home equity serve as a reliable method for building long-term wealth over time, but it can also help homeowners maintain their property while they reside in it.

Building equity in your home also means that you’ll be able to borrow equity through home equity loans and HELOCs for just about any purpose - be it financing your child’s post-secondary education, purchasing a second property, or making improvements to your current home.

Furthermore, building home equity presents you with a greater likelihood of selling your property for a profit, no matter what the market conditions may be at the time. 

If you’ve been wondering about how you can build up your home equity, we’ve compiled a list of 6 simple ways to do so:

1. Make a Large Down Payment

If you’re aiming to build as much home equity as possible in a short time frame, you can choose to make a sizable down payment from the get-go. A down payment of at least 20% is the industry standard for buyers with conventional loans, namely if they want to dodge having to pay private mortgage insurance (PMI). However, even a down payment of 21% can help to boost your home equity more swiftly.

You just need to make sure that you’ll still have adequate savings left over after closing, reserved for things such as home maintenance costs (which will generally run roughly 1 percent of the property’s value during the first year) as well as for any financial emergencies that may arise.

2. Make Paying Off Your Mortgage a Priority

The more you pay down your mortgage, the more your home equity rises. With that considered, perhaps the most simple method of building home equity is to ensure you’re making your monthly mortgage payments, as the value of your home equity is equal to your down payment and the amount of money you’ve already put toward your mortgage payoff. To determine how much equity is being built as you pay off your mortgage, look into how much of your payments are being allotted to interest vs. the amount going toward the principal - because the latter is what will contribute to your equity building.

3. Pay More Than What’s Required

A third way to build your home equity is to exceed your lender’s payment expectations per month by paying more than the amount that’s required. For instance, you can aim to start paying $1,300 a month toward your mortgage if you’ve been previously paying $1,000. That extra $300 monthly will help you to pay off your mortgage and build equity more quickly, while saving yourself from potentially paying a ton in interest (as much as thousands of dollars).

However, it’s important to speak with your lender to ensure that the extra money you’ll be paying monthly will be applied toward the principal, as this will help to build your equity.

4. Refinance Your Loan to a Shorter Term

A refinance of your mortgage loan can present yet another opportunity to build home equity. For example, if you were to refinance your mortgage to a shorter loan term of half its duration, while you will be paying more monthly, you’ll reap the rewards of speeding up the payoff process while gaining access to an abundance of home equity. Yet another benefit of a shorter loan term is that it will typically come with a lower interest rate, as well.

It’s important to note, however, that a refinance is not always guaranteed. In order to qualify for a refinance, a borrower must have good credit and a satisfactory debt-to-income (DTI) ratio, among other considered factors.

5. Increase Your Home’s Value With Improvements

Home renovation projects or simple improvements will help you to increase the overall value of your property - and fortunately, many kinds of alterations are quite affordable. If you’re giving the walls in a room a fresh coat of paint and replacing the light fixtures for a new modern look, it shouldn’t break the bank, but it will help to boost property value fairly quickly and easily.

Additionally, consider making improvements to the outside of your home, too, if necessary (including landscape). The outside of your home is where those critical first impressions are made by future potential buyers, after all.

Keep in mind that some renovation projects will provide you with a greater return on investment than others, so be sure to do your research beforehand to determine which renovations will generate the most return.

6. Allow Your Home’s Value to Increase Over Time

If you aren’t in any particular rush to use your home equity, you could simply wait for the value of your home to increase on its own. If the history of the market has taught us anything, it’s that this is more likely to occur over time vs. the value of your home dropping (although anything can happen).

As any homeowner doesn’t exactly have control over the real estate market and its fluctuations, you can still do what you can protect yourself through making wise decisions when it comes to borrowing equity from your home. This includes avoiding withdrawing too much, and when you do, using this equity to put back into your property via any valuable improvements to protect its value.

Need help building up your home equity?

If you’re looking for some professional assistance with building the equity in your home more quickly and painlessly, our experts are here to lend a hand. Canadalend.com can help make building the equity in your home a more simple and effective process, so you can start reaping the rewards sooner than later.

To learn more about our home equity building solutions and financing options, call Canadalend.com at 1-866-I CAN LEND or contact us here.