Homeownership has many benefits, including the ability to use equity for financial goals. You can use the equity to finance a major renovation of your home, pay off high-interest debt on credit cards or cover college tuition costs.
When can you begin building equity on your home?
Your financial situation will determine how much you invest in the property. It is best to put a large amount down and make regular payments.
You should consider making improvements to the property in addition to investing a lot of money. You can boost the value of your house by adding an extra room, remodeling the kitchen, or updating the bathrooms.
Using a higher mortgage interest rate can be another effective way to build equity in your home. By shopping around, you may be able to save thousands on interest.
Refinancing your mortgage into a shorter loan term can also increase the amount of equity you have built up in your home, though it will come with higher payments. Alternatively, you may be able to reduce your mortgage payment by a few hundred dollars each month by making biweekly payments or by paying more than the required minimum monthly payments.
It takes time to build equity, but when you do, it can be a valuable resource that can be tapped at any moment. You can either take out a HELOC, which is a secured loan where your house acts as collateral or apply for a loan based on the equity that you have built in the property.
What is equity?
It can take many years to build equity in your home. Making regular mortgage payments is a way to build equity in your home while your property value increases and you reduce the loan balance. This can be done by making a significant down payment, lowering your mortgage interest rate or refinancing.
The size of your equity when you are ready to sell can have a significant impact on the price that you will get for your house. It will also affect how quickly you can sell the home and how much you'll walk away with.
You can also use it to pay for other life-events or emergencies. You could use the money to pay for your college tuition, or cover medical bills when needed. You could borrow against your equity in order to finance a wedding, a move to a more expensive or larger home or even a business venture.
In order to borrow money against your home, you need to have at minimum 15% to 20% equity. Many mortgage lenders require this level of equity to let you borrow.