build home equity and create a strong financial base. If all goes well you can end up successfully owning the home and reaping the benefits of having a strong financial asset. But you might be wondering, what is home equity and how is it built?
Well, join us as we explore what home equity is and why it is important. Here, you’ll also get to learn some useful tips for building equity in a home that will hopefully help you grow the value of your property and wealth. So, let’s get started!
What is Home Equity?
Wondering what home equity is? Home equity simply refers to the portion of your home you actually own. For example, if you have only paid a 20% down payment for a home, you own 20% of that home.
Home equity can be calculated by subtracting your mortgage debt from the current market value of your home. For example, let’s say the current market value dictates that your home is worth $500,000, but you still owe $300,000 on your mortgage, then your home equity is $200,000. Now that we’ve seen what home equity is, let’s take a look at what building home equity is and why it is important.
Building Home Equity
Building home equity means increasing the difference between the value of your home and your mortgage debt. You can do this by increasing the value of your home or by decreasing your mortgage debt.
For example, suppose you had a mortgage debt of $300,000 and you decide to pay $100,000 in mortgage payments. You will have then increased your home equity by $100,000 by lowering your debt to $200,000.
Building equity in a home can be important for several reasons.
Here are a few of them;
- Allows you to make a profit when you sell your home. If you are planning on selling your home soon, high home equity can help you make a profit on your property. Building equity means you own more than your debt and, therefore, you stand to profit from the sale of your home. Profits made from the sale can be used to buy another home or even make investments elsewhere.
- Grows your net worth. Building home equity helps you grow your long-term wealth, especially when your home’s value appreciates over time.
- Empowers you to borrow funds against the value of your home equity. If you need some funds to get through a rough patch you can take a loan against your home equity by applying for a home equity loan. With enough equity, you can access more loan funds from home equity loans and also qualify for other types of loans.
How Can You Build Equity in a Home?
If you are planning to purchase your first home and are wondering how you can build equity in a home, here are a few important tips to consider;
- Paying a huge down payment
If you haven’t purchased your home yet, you can start by making the first crucial step; paying a huge down payment. The minimum amount required for your down payment depends on the type of mortgage you’ll take. The figure may range between 0% to 20%. However, to make huge gains in your home equity you will want to go above the minimum amount. The larger the down payment, the less mortgage debt you’ll have from the get-go.
Choosing to pay more than the minimum down payment comes with a few perks too. Often, lenders will offer you better interest rates, allowing you to save on your interest payments.
You’ll also get to shorten the loan term by paying a huge down payment.
- Selecting short-term mortgages
The standard mortgage term in the U.S is 30 years. This gives the borrower 30 years to pay their loan. However, you can always opt for a short loan term by selecting short-term mortgages such as 25, 20, or even a 10-year mortgage. This will allow you to pay your mortgage more aggressively and own the house sooner.
Homeowners who already have a mortgage can refinance or restructure their mortgage to allow for a fast payment plan. For instance, a homeowner with a 30-year mortgage plan can restructure their plan into a 20-year plan and save up to 10 years off their plan.
- Wait for your home value to increase
The housing market fluctuates and your home’s value may change over time. When the demand for homes in your neighborhood grows, home prices may naturally increase and in turn, increase the value of your home. If you are in no rush to build your home equity you can simply wait for your home value to increase over time.
If you are in an area that is developing fast you may see a quick rise in home value without having to wait for too long. As you wait for your home value to increase you can also make some home improvements to add more value to your home.
Making home improvements is one of the best ways to quickly increase the value of your home. By improving your home’s curb appeal you can easily earn double or triple the return on investment when reselling your home.
It is important, however, to make wise home improvements since not all home improvements can improve your home’s value. For example, installing a new roof, swimming pool or solar panels may not improve your home’s value significantly. However, home improvements such as remodeling your kitchen, replacing windows or doors, and painting your home’s interior can help boost your property’s value and, therefore, help you build home equity.
You don’t have to spend a lot when making home improvements. With a few well-thought budget home improvement projects you can get the most bang for your buck and at the same time increase the value of your home.
Looking for a home equity loan with a low credit score?
Sometimes, even with careful planning, it is possible to experience a financial setback when trying to build equity in your home. Whether it is through loss of income or unexpected bills, you can run out of finances to cover personal bills or other costs related to your home such as home renovation costs.
While it is always a good idea to apply for a home equity loan, qualifying for such a loan can be hard when you have a poor credit score. Bad credit can hurt your chances of accessing loans even when you have plenty of equity in your home.
One of the best ways to access a cheap home equity loan with bad credit is by choosing a debt relief company that is dedicated to helping out homeowners with low credit scores. Freedom Debt Relief is one such company that offers cheap home equity loans to homeowners with high mortgage debts and poor credit scores in the U.S. To learn more about Freedom Debt Relief and how you can acquire cheap home financing visit www.FreedomDebtRelief.com .
Building your home equity may take some patience and money, but it is well worth it. By using our tips for building equity in a home, you can increase the value of your property and soon reap the financial benefits when it’s time to sell or refinance your home.