3 Ways to Build Equity in Your Home
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3 Ways to Build Equity in Your Home

Posted: 2019-11-05 | Author: April Nye


Owning a home is the realization of the American dream for many. By having a home that you can call your own, you are able to provide shelter and stability for your family. And as long as you keep up the payments on it, no landlord can ever make you leave.

Another thing owning a house provides is the opportunity to build equity and vastly increase your net worth. Even if you do nothing but pay your mortgage every month, you are almost certain to build equity. Historically, home values have always risen. It is true that the market took a big hit during the great recession of the late 2000’s, but it has since recovered, and in most areas of the country, home values are higher now than they have ever been before.

So, with the passage of time, you can generally expect the value of your house to rise. While this is happening, you are also knocking off a little bit of principal from your loan with each mortgage payment you make. Just these two factors alone can allow you to build a significant amount of equity in a relatively short period of time.

If you want to go beyond the basics, there are some other things you can do to build more equity in your home. You can start by putting up a bigger down payment when you first purchase the house. A larger amount down means owing less on your home from the start, which gives you more equity.

If you have the money in savings anyway, this would essentially be just transferring it from one savings account (at the bank) to another (equity in your house). Putting the money in your home comes with another benefit as well; you can lower or eliminate private mortgage insurance (PMI), which could save you a couple thousand dollars per year on your mortgage payments.

If you have already purchased your home, there are some other ways to build equity while you live in it. Here are three of them:

1. Pay Extra on Your Mortgage Each Month

The simplest and easiest way to build equity in your home is to make extra payments on your mortgage. There are numerous ways you can approach this, and the key is to find a strategy that you can do consistently. One way is just to add an extra amount to each mortgage payment. For example, if your monthly mortgage is $1200, you could pay $1500. Another way is to switch to biweekly payments, meaning you would pay your mortgage every two weeks (usually coinciding with your paydays) rather than monthly. This would add one extra monthly payment to your mortgage each year, allowing you to pay off a 30-year mortgage about seven or eight years early. Finally, you could apply any special income you receive (such as bonuses from work, gifts, inheritance, income from a second job, etc.) to your mortgage, or just schedule extra mortgage payments at certain intervals throughout the year.

2. Make Improvements to your Property

Some remodeling and improvement projects can add significant value to your home. But you need to be smart about this, because not all home renovations add value equally. Look for projects that are relatively inexpensive and/or projects in which you can do at least some of the work yourself. Landscaping and other exterior improvements that enhance curb appeal generally provide a high return on investment (with regards to adding equity to your home). The same holds true with lower-cost interior projects such as repainting the walls and upgrading your light fixtures.

3. Refinance to a 15-year Mortgage

If you currently have a 30-year mortgage, it might be a good time to consider refinancing into a 15-year mortgage. With a 15-year mortgage, a much higher portion of your mortgage payment will go to paying down the principal of your loan, which will help you build equity faster. You will also pay your mortgage off sooner, and you will usually get a better interest rate on a 15-year mortgage than on a 30-year. Provided you can afford the higher monthly payment that will come with a 15-year mortgage, this may be a great option for growing equity in your home. Speak with a local lending professional to discuss your situation and determine whether or not refinancing is the right option for you.

There are a number of ways to build home equity, but they all come down to two basic strategies. Either you will be knocking off principal from your loan, or you will be doing things to increase the value of your house. The more you can do in either area, the faster you will build equity in your home and grow your net worth.


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