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Home Equity: What it is and How to Build it

Your home as an investment: Everything you need to know about home equity

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You may have heard that building home equity is one major advantage of owning a home. Perhaps you’ve even considered using equity to overhaul the master bath or cover college tuition. But what exactly is equity, and how can you build it? It’s much more than just another loan jargon term - it’s likely your most valuable asset.

What is home equity?

Equity is the amount your property is currently worth, minus the amount of any mortgage on your property. If you owe $100,000 but your home is worth $120,000, your current home equity comes out to $20,000. You can also have negative equity if you owe more than your home is worth.

How do I build equity?

There are two ways to build equity:

  • Decrease the amount of debt owed.
  • Increase the property value.

To decrease debt, simply pay down your principal via regular monthly payments. If you’d like to see more rapid results, you could make a larger down payment, choose a shorter loan term or pay more than the minimum whenever possible.

To increase property value, kick up the curb appeal and never skip out on routine maintenance. If you’re lucky, home values in your neighborhood will also increase over time on their own!

Why does home equity matter?

Home equity is an asset, which means you may be able to borrow against it. Home equity financing can be set up as a loan or a line of credit. To determine the right financing option for you, consider when you’ll need the funds and shop around for the best deal.

Some homeowners could also use their home equity for retirement. Reverse mortgages are increasing in popularity among seniors who have equity in their homes and want to supplement their income. Homeowners seeking a reverse mortgage must be 62 or older, currently live in the home and have paid down at least a considerable amount of their loan.

Looking to invest in a home? Contact a local loan originator in the Motto Mortgage network who can help make your dream of homeownership a reality.