One of the best and biggest assets many of us will ever own is our home. Home equity can be leveraged to finance a college education, take care of emergency expenses, or make long-term investments. But what is home equity and how can you make the most of it?
Simply put, home equity is how much of your house you actually own and what that house is worth. Since most homeowners take out a loan when buying property, that means until your loan is fully paid off, your lender has a financial stake in the property as well. The more of the property you own, the higher your equity value.
Here are five ways to maximize your home equity:
Know where you stand
Before you can begin increasing your equity, it’s important to determine how much you currently have. Look up what your property is worth using a home value calculator. Keep track of how much of your housing loan you’ve paid off to date and how much you still have to pay. Remember to factor in your initial down payment, if you paid one. The higher the down payment, the higher your stake in the property.
Pay off your mortgage
The most obvious way to build equity is to own 100% of your home. For most of us that means paying off a mortgage, which takes time. Good thing there are a few ways of speeding up the process. For instance, you can arrange to make payments every two weeks instead of every month. You can refinance your mortgage for a better rate and pay it off quicker. Or you can pay more than required when you do make your payments (don’t go overboard, just add whatever extra amount you can afford). Or you can take out a 15-year mortgage instead of the standard 30-year one, though be warned that doing so will require significantly higher payments.
Rent out part of the house
What better way to pay off your debt than to get someone else to do it for you? If you have a little extra space, consider turning part of your home into rental property. Not only is renting a good way to lessen the impact of those pesky mortgage payments, it’s also a nice way of generating some additional income for yourself. Plus, owning a property with such demonstrable financial benefits automatically adds to its value. Keep in mind, however, that becoming a landlord can increase insurance and maintenance costs, so your mileage may vary.
Make some renovations
For many, one of the great joys of homeownership is having a place not just to call your own, but to make your own. Luckily, upgrading your house typically upgrades its value as well. Whether it be something as big as adding a swimming pool or as small as installing a front porch light, every home improvement project provides a boon to your home equity. Even less drastic alterations, for example basic maintenance measures like replacing a water heater or rewiring the electrical system, can make a major difference.
This might seem like an odd piece of advice, but sometimes building home equity is as simple as having enough patience to wait for your property value to naturally appreciate over time. For some, taking such a passive stance is unbearable, and it can admittedly leave you at the whims of a rapidly changing market. Fortunately, paying attention to the experts takes a lot of the guesswork out of the equation and can give you an edge over those who don’t. Real estate will always have its down periods, but with enough time you can usually count on things turning out for the better in the end.