One of the greatest benefits of being a homeowner rather than a renter is that you have the opportunity to build equity over the years.
Equity in your home refers to the difference between what you owe on your home and what the current market value is of your home.
For example, if your home is worth $100,000 and you only owe $75,000, you have $25,000 of home equity.
Home equity is a key component of building long-term wealth. But just letting the property appreciate over time isn’t the only way that you can maximize your equity.
Put Down a Bigger Down Payment
There are a lot of mortgage lending programs that offer very small down payments (and some require no down payment at all!).
And while these programs are hugely beneficial for people that want to buy a home but don’t have a ton of money to put down, if you have some extra cash that you can put toward a down payment, you’ll be able to build equity while also saving money in the long-term.
Will a $15,000 down payment make a huge difference in your monthly payment versus a $10,000 down payment? No.
But over the long haul, not having to pay interest on that $5,000 will save you a big chunk of change!
Make Bi-Weekly Mortgage Payments
Though most people pay their mortgage in one lump sum each month, there are two distinct advantages to paying your mortgage payment in two smaller amounts each month.
First, if you pay bi-weekly, you’ll be able to fit a full month’s extra payment into one calendar year. That means that you can reduce your payment period from 30 years to just 24 years. That’s not bad for simply paying twice a month!
Additionally, with that extra full payment you get each calendar year, you’ll more quickly reduce how much you owe on your home, which will increase the equity you have.
Some lenders charge you for the privilege of making bi-weekly payments, though, so be sure to check with your lender before making that change.
Make Smart Home Improvements
As I tell my sellers, if you want top dollar for your home, you should be prepared to make some home improvements.
The same principle applies for people that want to maximize their home equity.
Updated kitchens and baths, in particular, will increase the value of your home. So will things like new windows and doors, new siding, or a new roof.
Minor upgrades like new lighting or fresh paint will certainly make your home look and feel nicer, but in terms of adding equity, those smaller improvements don’t do much for building equity.
If you focus your attention on big-ticket items, adjust how you pay your mortgage, and start things off with a bigger down payment, you will find that you are able to build much more equity in your home in a shorter period. That, in turn, gives you added wealth (and wealth to tap into if the need arises).
Ultimately, that’s why real estate is one of the best ways to build wealth!