Owning a home can be an easy way to build wealth. You will build equity by purchasing a home and making payments and overtime your debt will become an asset. Many people may not realize the importance of building equity and even if they do, most have no idea how to go about it.
There are many ways to build your equity when you stop renting and start owing. You can build your equity faster than you think, continue reading for our seven ways to build equity by being a homeowner.
Table of Contents
What is Equity?
The amount of your property that you actually own is your home’s equity. Home equity is the difference between what your home is worth and what you actually owe. As the amount you owe decreases by making monthly mortgage payments, you are building equity. Most home values will increase over time thus helping to increase your equity even more.
How is the Equity Calculated?
It is very easy to calculate your equity. Your current mortgage balance, which can be found on your monthly billing statement, and the outstanding balance of any other loans you have that use your home as collateral are added together and then subtracted from the home’s current market value. For example, if the current market value of your house is $350,000 and the balance of your current mortgage and other loans equals $120,000, your current home equity is $230,000.
Can You Use Your Home’s Equity?
“Tappable Equity” is a relatively new term that refers to the amount of money you can access from the equity in your property. You do not necessarily have to sell your property to use its equity. You can borrow from the home’s equity with a Home Equity Loan or a Home Equity Line of Credit (HELOC). If you know how much money you need and want to get it all at once, a Home Equity Loan is a good choice. On the other hand, a HELOC, which is a revolving line of credit, is a better option if you would like to take out smaller amounts of money as needed.
An important point to remember is that you cannot borrow the equity’s entire value. Most lenders require you to maintain 20% equity in your property therefore you can only access a part of its value.
How Can You Build Your Equity?
Now that you know what equity is and why it is important, you may be wondering how you can build your equity. The following seven ways will help you build your equity if you have stopped renting and now own a house.
1. Invest More on Down Payment.
A down payment is the amount of money you need to pay upfront at closing when you buy a house. This is typically between 5 and 6% of the purchase price. In some cases the down payment can be as low as 3% or as high as 20%. When you first purchase your property, your home equity equals your down payment. In other words, the more money you put down, the more equity you will have. Making a bigger down payment is a great first step toward building equity.
2.Consider Buying a Property that Needs Repairs.
The desire to own your dream house may discourage you from purchasing a more affordable house thus keeping you renting and not building equity. Buying a house that needs some improvements or even purchasing a fixer-upper may be a good choice. A 203(k) loan is a type of mortgage loan that allows you to buy the house and have the money to make repairs and renovations. Typically the value of your home will be greater than the money spent on the renovations at the end of the project. This strategy not only helps you to stop renting but builds your equity quicker than if you bought an expensive move in ready home.
3. Set up Automatic Bill Pay.
Automatic bill pay is when a payment is automatically transferred from your bank account or credit card to one of your billers. According to a set payment schedule, the biller automatically collects the amount due from you. Mortgages, as well as many utility bills, can be paid with automatic bill pay.
When bill payments are made automatically on the due date, you can prevent damage to your credit score due to late or missed payments. You will also save money by using automatic bill pay because you will avoid late fees and penalties. Paying bills automatically helps you manage your spending and keep to your budget since you will be aware of when money is being taken from your account and what it is for. By automatically paying your mortgage every month, you will be working toward building your equity.
4. Make a Budget and Stick to it.
Consider making a budget for your living expenses and stick to it to avoid spending extra money. By doing this, you can cut your living expenses and start saving more money. Also, you can take some of the extra money you have each month and put it toward your mortgage, thus building your equity.
5. Repair Your Credit Score.
If you have a low credit score, repairing your credit is the first step when you want to stop renting and start owning. Once you are a homeowner, you can start to build equity. By repairing your credit, you will qualify for a better mortgage rate making it easier to buy your dream home.
The Mortgage Ready Program is a full-service program that helps with everything from credit repair to home ownership. We offer a step by step plan to get you on the path to homeownership as quickly as possible. For more information on Credit Repair, take a look at this article (click here).
6.Pay More Toward Your Mortgage Each Month.
During the first years of repaying your mortgage, your payments mostly go toward the interest you owe on the loan. During these years you pay very little toward the principal also known as the amount you borrowed to buy the house. One way to build more equity is to pay extra toward your principal each month. Not only will this build equity faster but it will save you money by reducing the amount of interest you owe overall on the loan.
7.Ask for Professional Help.
If you have a low credit score or other issues that may impact your ability to get approved for a mortgage. seek the help of a professional. The Mortgage Ready Program not only works with you to repair your credit but also puts you on the shortest path to home ownership. Call us today so you can stop renting, become a homeowner, and start building your own equity.
Invest in Yourself
Homeownership is a great way to build your wealth; remember renting builds the landlord’s wealth. If you are paying rent it is time to think about buying a home and making payments toward something that is yours. When you stop renting and start building your own equity you are investing in yourself and your future. click here to get started.
0 Comments