Building Equity: A Beginner’s Guide to Owning a Home

For most people, owning a home is a major milestone in their lives. However, beyond the pride and status that comes with being a homeowner, owning a home has financial benefits such as equity. Equity is the difference between what you owe on your mortgage and the market value of your home. Building equity in your home is an essential part of homeownership as it increases your net worth, provides security during a financial crisis, and unlocks potential financial opportunities. In this beginner’s guide, you will learn the basics of building equity in your home.

Increase the value of your home

The first step to building equity in your home is to increase its value. You can do this by renovating, updating, and maintaining your home. Renovations that add value to a home include kitchen and bathroom upgrades, adding a deck, or finishing a basement. Updating your home involves replacing outdated fixtures and appliances with modern ones, repainting your home, or replacing old carpets with new ones. Maintenance includes regular cleaning, repairing damages immediately, and conducting regular inspections of your home. Improving your home’s value increases the market value of your home, leading to increased equity.

Make additional payments

Making additional payments towards your mortgage can significantly reduce the amount of interest you pay over the life of your mortgage and increase your equity. Extra payments can be made annually, bi-annually, monthly, or as often as you like. One great strategy is to make a large annual payment of your tax refund or bonus. You can also make payments by rounding up your monthly mortgage payments, simply ask your lender how to do it.

Refinance your mortgage

Refinancing your mortgage can help you build equity in your home as it reduces your monthly mortgage payments, allowing you to use the savings to make extra mortgage payments. You can also reduce the interest rate on your mortgage, leading to a lower interest rate and an increase in equity. Check with your lender to see if refinancing is an option for you.

Rent a part of your home

Renting part of your home can be an excellent way to increase your earnings and build equity. Renting out a suite, a room or a garage can add to your monthly income- either to pay part of your mortgage or for a renovation that will further increase the value of your home.

Wait for appreciation

Appreciation is an increase in the value of a property over time. It is caused by market forces such as the level of housing supply and demand, the health of the local economy, and policies such as mortgages and interest rates. Typically, homeowners can expect an average appreciation of three to five percent annually. By waiting for appreciation, homeowners can build equity in their homes without lifting a finger.

Building equity in your home is an important part of homeownership. There are several strategies you can implement to increase the value of your home, including renovations, updates, maintenance, and renting out part of your home. Making additional mortgage payments, refinancing your mortgage, and waiting for appreciation are other strategies that can help you increase your equity. It's the essential part of homeownership - to build, to maintain, to improve. Being a homeowner is not only about having a place to live, it's about having a brighter financial future and a solid net worth.