What is Home Equity?
Every property owner is looking to build equity. Simply put, equity is the difference between the worth of the property and the balance owed on the mortgage. For example, you have taken out a $200,000 mortgage (the value of your home). After the down payment and eight of the fifteen years steadily paying the mortgage, you have $80,000 left to pay on the mortgage. However, in those eight years, your house has appreciated in value. It is no longer worth $200,000 but $245,000. Your home equity at this time would be $165,000. Home equity, after the property is sold, is like money in the bank.
How to Build Home Equity
There are many ways to build home equity. When shopping for a house, a good idea would be to look at the market fluctuations in a given area. Find a place that has shown steady appreciation. Once you choose a loan provider and mortgage loan, put down more than just the twenty-percent if you can afford it. The more the principal of the loan is paid, the more equity is built. Shorter mortgage periods and higher principal payments are also options if finances allow.
Home Equity through Home Improvement
One of the most productive means of building home equity is by improving your home. This is an option whether you have the cash or not. Lenders make available a type of second mortgage called a home equity loan. This sort of loan is given in trust with your home equity as collateral. There are two types, a
HELOC home equity loan (a home equity line of credit) and a closed home equity loan. Home equity loans have interest that is tax deductible and doesn’t compound with time. When considering home improvement, make sure the improvement you make to your house is worth the expense. Placing pools and hot tubs in a home do not actually do much to appreciate the value of your home. However, remodeling a kitchen or a bathroom usually comes as a nice investment. Whether needing a loan to improve your equity, or being able to improve it without a loan, home improvements are a proven source of building equity.
Author Credit:
Houston Neal is a featured financial correspondent for online publications. He is a guest writer for Citylight Financial and works full time for
10-Spaces Consulting.
Citylight Financial is a resource for consumers interested in the mortgage process. They provide homeowners with tips about the
home equity loan process,
home mortgage refinance, and
heloc vs home equity loan.
