Home Equity: 5 Best Ways to Build it Quickly

A resort style home

Buying a new home in Olathe, Overland Park, or Wichita automatically makes you a real estate investor in Kansas. As a proud property owner, you can grow your wealth through equity, which is your home’s worth after deducting the outstanding loan balance from your house’s market value.

Of course, the most effective way to increase home equity is to buy a property in a hot real estate market. Apart from capitalizing on market forces, here are some things you can do to have more equity over time:

Putting Down a Lot of Money

The amount of your down payment automatically becomes home equity. A large down payment can serve as a cushion against price decreases, keeping your mortgage from going underwater. During the housing boom, however, a small down payment would suffice to secure a favorable interest rate and grow your wealth passively.

Keeping the Term Short

Short mortgage terms come with relatively higher monthly payments, allowing you to pay off the loan balance fast. The more progress you make on debt repayment, the faster home equity you can build.

Paying Mortgage Extra

If your monthly budget doesn’t allow a short mortgage term, paying more whenever possible could help you gain home equity quicker. The extra portion goes toward the principal, allowing you to pay off your mortgage faster. A bi-weekly payment strategy promises to be the most effective because you’d end up paying one month more at the end of the year. Of course, this is only possible if your lender wouldn’t charge prepayment penalties.

Saying No to Refinancing

Refinancing your housing loan is an option to snag a lower interest rate in the future, or even turn home equity into cold cash with a cash-out mortgage. However, this could suck your equity dry and diminish the benefits of having it.

Focusing on the Right Home Improvements

If you spend on renovations or additions with perceived values that exceed costs, you’d be making a great investment to gain equity fast. According to the 2017 Cost vs. Value Report, installation of fiberglass attic insulation offers an impressive 107% ROI.

Although you’re not motivated to buy a house for the sake of building home equity, you should keep the thought in your back pocket. After all, if the housing market nosedives at some point, having a lot of equity can keep you from losing your home.