5 ways to build equity in your home

how to build equity in a home

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Home equity refers to how much you owe on your mortgage compared to how much a home is worth.
The more equity you have, the better deal you could get when you sell or refinance.
You can increase your home equity by either paying down your mortgage or boosting the home value.
See Insider’s picks for the best mortgage refinance lenders »

If you’re refinancing, getting a second mortgage, or selling your home, you’ll want to know how much equity you have.

The more equity you have in your home, the better. You have plenty of options for increasing your equity. You can find ways to pay down more of your mortgage, or ways to boost your home value.

What is home equity?

Home equity refers to how much of your home you own, financially speaking. If you have a 10% down payment, you own 10% of your home from day one.

To calculate your home equity, subtract how much you owe on your mortgage from the value of your home. Let’s say your home is worth $300,000, and you still owe $250,000 on your mortgage.

$300,000 – $250,000 = $50,000, or 16.67%

Maybe your home value has increased since you bought it, so an appraisal shows it’s now worth $350,000. That means you have more equity:

$350,000 – $250,000 = $100,000, or 33.33%

You do have some control over how much equity you have. Here are five ways to build more equity in a home:

1. Make a large down payment

If you haven’t bought a home yet, you can gain a lot of equity by taking one crucial first step: make a big down payment.

The minimum down payment you’ll need depends on which type of mortgage you get. You could need between 0% and 20%. You may want to place more than minimum, though. The larger your down payment, the more equity you have in your home from the get-go. 

A large down payment comes with other benefits, too. Lenders typically reward bigger down payments with better interest rates. If you place more than 20% down on a conventional mortgage, you don’t have to pay for private mortgage insurance.

2. Choose a shorter-term mortgage

The standard mortgage has a 30-year term. But you can choose a shorter term, such as 20, 15, or even 10 years. You’ll pay down your mortgage more aggressively and own the home in full years sooner.

If you already have a mortgage, you could refinance into a loan with a shorter term. For example, maybe you took out a 30-year mortgage, and you have 25 years left to pay. If you refinance into a 15-year term, you’ll shave 10 years off your mortgage and own your home that much sooner.

3. Pay down your mortgage

Every time you make a monthly mortgage payment, you gain a little more equity in your home. As a …read more

Source:: Business Insider


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