HOME EQUITY BUILDING STARTEGIES
What is home equity?
One of the most positive aspect of owning your home and why so many people buy instead of rent is that they can actually increase their equity while they are living in it. Not only do they get to live in that upgraded home but also get a chance to refinance and get that money out and use it for investments or any other purpose that they desire.
LETS LOOK AT SOME OF THE MOST EFFECTIVE WAYS YOU CAN INCREASE THE EQUITY IN YOUR HOME:
1. Market trends : Rising house prices – With the prices of real estate rising, you will naturally increase the equity in your home because of increase in its value. If your home is worth $200,000 today and in 5 years if it goes to $220,000 you have build a $20,000 equity on your home without investing a single penny. If you are planning to be a home owner for long run, than this might work in your favour. It is therefore very important that you buy at the right price and at a perfect neighbourhood. We recommend at least 9 different parameters, before we recommend any buying of property. We guide you how to look at these before you make that buying decision.
2. Reducing Mortgage: As you are paying towards your mortgage, each and every payment reduces your balance. One important thing for you to know is that you should be aware of how much of your payment is going towards interest and how much is going towards your principal. Sometimes the payments include the property taxes payment and that can increase your payment amount but may not increase your equity.
3. Larger mortgage payments – if you make larger payments each payment, the extra amount that you pay will go towards your principle mortgage that will have dual impact in increasing your equity as it will reduce the mortgage loan and also you will save big on interest payments. So in a nutshell, with the extra portion going toward principal, you will pay off your mortgage much faster and gain home equity a lot quicker. The more that you can pay towards your principal, the more equity you build and also reduces the total amount that you end up paying on your mortgage.
4. Biweekly mortgage payments – One of the easiest way to build equity is to change your mortgage payments frequency. If you can afford payments biweekly, you will be paying a larger amount during the year towards your mortgage, but most of that extra payment, will directly build your equity.
5. Reduce your mortgage term – This needs you to consult with your mortgage consultant or your bank to refinance into a shorter-term mortgage with a lower mortgage rate, like a 15 – year mortgage instead of 30/40 years, that increases your payments towards your principal, thus helping you to pay off your mortgage sooner and saving interest costs. This option does increase your payments, but if you can afford those, you will be building equity in a much smaller timeframe.
6. Do not Refinance – As you build equity, you will have the option to take it out and use it again for any of you needs or as you desire. We encourage you to be very cautious about doing that. The reason is that this is exactly as taking a loan and will reduce your equity. If you plan to do something that is again going to increase the value of your home or make you more money that just sitting in your equity than it should be okay. But spending your money on doodads instead of increasing your equity may not make a lot of sense.
7. Your home improvements – if you make smart home improvements, where the expected value exceeds the cost, you’ll increase your home equity by having a home that’s worth more. There are some upgrades that pay off more than others. Some upgrades like granite counter tops and stainless steel appliances are still on top of buyers list. Also regarding rooms upgrades, generally we find the bathroom and the kitchen upgrades pay you off the most.
8. Proper Maintenance – Keeping your your home in tip-top shape will always improve the value of the house and will give you more for your dollar. Keeping it in a good decent shape, you are also avoiding any big huge expenses that can again compromise on your equity. Clean carpets, good lighting and landscaping play a very important role here.
9. Curb appeal – This factor plays such a extreme importance now. Especially all the awareness about staging and presentations of a home done so professionally now, the outlook for seller and the perspective of buyers is changing rapidly. It almost seems like an expectation that the homes for sale be presented properly now.
10. Larger down payment – finally, you can make a larger down payment at the outset to automatically acquire home equity. Doing this may get you a lower interest rate and also lower your payments going towards your interest of the loan, thus paying off the mortgage even sooner and building your equity sooner.
The important thing for you to know that even if you are not in position to qualify for a mortgage right now, you may be able to get into our Rent to Own program, and start building your equity in more than one of the ways mentioned above. We give a lot of importance to all the above mentioned factors and hence will guide you in how we could help you achieve them.