The ability to build equity in your house is one of the most important benefits of home ownership. It can be used to achieve a wide range of financial goals. You can use this money to pay for major home improvements, eliminate high interest credit card debt or cover college costs.
When do you start building equity in your home?
How much you intend to invest depends on your finances and the type of property. To build equity, you can make a significant down payment and continue making payments.
In addition to putting down a large amount of money, you should also consider investing in improvements around the property. Addition of an extra bedroom or renovations to the kitchen and bathroom can increase the value of your home, and therefore your equity.
It is possible to build equity with a higher rate of interest on your mortgage. Often, you can save thousands of dollars in interest by shopping around for better rates with several lenders.
If you refinance your mortgage to a shorter period, it can increase the equity that you have in your home. However, this will result in higher monthly payments. If you pay more than required monthly or biweekly, it may be possible to lower your mortgage payments by a few hundred each month.
You can borrow against the equity you have built up in your house at any time. You can do it by taking out an equity line of credits (HELOC), that is, a secured credit card using your house as collateral. Alternatively, you can get a home-equity loan and borrow the equity amount you have accrued in the property.
What is equity?
The process of building equity can take several years. The process involves paying your mortgage regularly and consistently while the value of the property increases. This can be achieved by making a substantial down payment, decreasing your mortgage rate, refinancing, or using other strategies to increase the equity of your home and ultimately sell it for cash.
When you're ready to sell, the size of your equity can be a big factor in the price you'll get for your home. It will also affect how quickly you can sell the home and how much you'll walk away with.
You can also use it to pay for other life-events or emergencies. You could use the money to pay for your college tuition, or cover medical bills when needed. You could also borrow against equity to fund your wedding, buy a larger house or finance a business.
Idealy, you should have between 15% and 20% of equity in your property before you can borrow. Most mortgage lenders will not let you borrow unless you have at least 15% to 20% equity in your home.