If you are like many homeowners, your home is the place where you can work, relax, eat and sleep, help your children with their homework, and organize your meetings by Zoom. But your home is also one of the best places to build wealth, and the way to do that is by increasing the equity you own in your home.
What is the net worth of the house?
It is the part of your home that you own when you subtract your mortgage balance from the current market value of the home. Let’s say your home is worth $ 300,000 in today’s market and you owe $ 200,000 on your mortgage: $ 300,000 – $ 200,000 = $ 100,000. That $ 100,000 is the equity in your home.
In general, equity accumulation happens in two ways: It can lower your mortgage debt or increase the value of your home. Here are some options to do one or both. Choose one or more of the following suggestions, and perhaps you are on your way to growing your wealth.
Lower your mortgage debt
1. From a large hitch
Your down payment drives the net worth you accumulate over time. Depending on your eligibility for assistance and available loan programs, you could give as little as 3 percent or even pay nothing, but by giving more down payment, your net worth will increase instantly.
Advantage: If you can give a down payment of at least 20 percent , you will also avoid paying for private mortgage insurance or PMI.
2. Pay more on your mortgage
Most mortgages are on an amortization schedule, which means that you make payments in equal installments over a set period of time until the loan is paid off.
- Accelerate your loan by switching to biweekly mortgage payments. Divide your mortgage payment in half and send it every two weeks instead of once at the end of the month. This adds an additional payment to your mortgage each year, which can ultimately shorten the term of your loan and save you some interest over the life of the loan.
- Add a certain amount each month. Check your budget to see how much extra money you can realistically contribute to your monthly mortgage. For example, if you just paid off your car loan, consider adding that extra $ 250 you saved to your mortgage each month.
- Use the occasional extra money. Every time you receive a tax refund, job bonus, or cash gift, use it to pay off your mortgage balance.
3. Refinance for a shorter loan term.
A shorter loan term can have two main benefits: You generally get a lower interest rate and more of your mortgage payment goes to principal each month. A 15-year mortgage from inception helps you build more equity each month than a 30-year mortgage.
Increase the value of your home
In addition to paying the amount owed on your home, you can also increase your equity faster by increasing its present value. Here are five improvements you can make that could help you do just that.
4. Make the exterior more attractive.
According to the Institute of Appraisers , the way your home looks from the street, its curb appeal, can affect its value by as much as 13 percent. Make sure the existing landscaping is clean and well maintained. If your yard seems dull compared to your neighbors, consider planting flowers, changing your light fixtures, or repainting your front door.
5. Choose the best interior areas to improve.
Once the exterior looks good, focus on the kitchen and bathroom. When these two rooms are outdated, it can prevent a property from achieving its highest valuation. According to the cost vs. Remodeling magazine’s 2020 value , the average home remodeling project provides a 64 percent return on your investment.
Advantage: You will probably enjoy living in the house more. According to a report by the National Association of Realtors , 74 percent of homeowners had a greater desire to be in their homes after completing a remodeling project.
6. Keep your home low-maintenance.
Home buyers worry about buying a home that will need constant maintenance, so replacing a major component before putting it up for sale, such as the furnace / furnace, water heater, or even the roof , can allay fears of a home. emergency repair in the near future and help you get a higher price. The improvements make things easy to clean and mantene r can also increase the value of the house. Consider replacing easily stained carpet with hardwood floors or replacing high-maintenance wood siding with vinyl siding.
7. Make your home more efficient.
Energy conservation, “smart” technology, and sustainability features can have a significant impact on the value of your home . Energy efficient lighting, smart appliances, water-saving plumbing, and solar panels can add value and make it easier to sell your home at a higher price.
8. Make it bigger.
Price per square foot is how real estate agents help clients compare houses that are similar in style and improvements. Larger homes can often determine higher values during an appraisal. Adding a bedroom is the obvious way to make your home bigger, but you can also create additional living space by finishing the basement or building a deck .
You can also just wait for your home’s value to go up. Local housing markets fluctuate, but over time, home values have risen. In 2020, the average listing prices grew 13.3%, according to Realtor.com . Even if that growth rate slows, your home’s value naturally increases when house prices and demand increase. You can not control the market, but you can check the value of your home using a home price estimator online and Zestimate Zillow , the evaluator houses Redfin , the evaluator Rocket houses or consulting a professional evaluator.
For more information on how to increase your home equity or to get answers to any questions you may have about buying a home, check out our resources at efirstbank.com or visit one of our branches to speak with a FirstBank representative today.
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