Owning a home is one of the biggest investments people can make. The investment can grow in value in the form of equity. Home equity can be used for everything from future remodels and improvements to retirement, so the more you have of it, the better.
Just to define equity, it is the value of a home minus what is owed on that home. Obviously, the amount of equity is important to the homeowner as it represents assets. Building wealth in your home is a long-term goal. Most people don’t have the financial resources to purchase a house outright and so it takes time to build equity. Gains in your individual ownership happen as you pay off more of your mortgage and if/when the market value of your home increases. The good news is that there are ways a homeowner can affect the value of their equity.
There are two key factors that affect the amount of equity a home has. How much of the mortgage has been paid off and how much the value of the home has increased.
One way you can increase the equity of a home the day you move in is to come in with a larger down payment. If you have the cash and you’re looking to increase your equity as quickly as possible, it’s worth it to write a bigger check up front. Not only will you lower your interest and monthly payments, but you’ll also be that much closer to owning a positive stake in your home.
Remember, equity is the value of your home minus what you owe on it. That means that to increase the equity one must decrease the amount owed so a good tactic is to pay extra money towards the principal with each monthly payment thereby bringing down the amount owed. Putting this extra money towards mortgage payments can be likened to putting money in the bank.
Your home is a financial resource and its future value may some day be a source of income for your family.