Tips to Help Young Homeowners Build Home Equity
It is indeed possible to have good credit and own a home in today’s economy. A lot of young people and millennials complain that they don’t have money and blame their troubles on a bad economy.
Many people don’t realize that they can create wealth via homeownership. The best part is that it is almost as easy as free money, made possible by building your home equity.
What is Home Equity?
Home equity is a percentage of the property actually owned by the homeowner. It is based on the percentage of the home’s price that has been paid. For instance, if you make a down payment of 5% on the property22, then your present home equity is 5%. If you bought your property some time ago, you can calculate its home equity by deducting any pending housing loans you have from the home’s present market value.
How can this create added wealth? After making the down payment, there’s still the property’s remaining balance that needs to be paid. This gives you time to boost your credit as well as your property’s value.
How to Build Equity
Unlike expenses and debt, homeowners benefit from home equity growth. How? You can improve your credit via the property’s market value, pay for your mortgage through your diligence, and gain full home ownership gradually. Now let’s look at the ways you can produce wealth through home ownership:
- Price Appreciation
Property that is located in a good area will typically increase in value over time and is a wise investment.
- Rising House Prices
Do your homework before you buy a house and check if the property is easily accessible, whether any developments have been planned in the area, the performance of the local market, etc. These elements can improve your property’s market value and home equity.
- House Improvements
Try to upgrade your property by installing a shower in the extra bathroom, updating appliances, or planting a few trees in the yard. These types of expenses are a smart investment as they can increase the value of your home.
- Home Maintenance
Keep your property in good shape by regularly performing repair checks and needed maintenance around and in your home and preserving exclusive features such as outdoor decks and any other custom home features.
- Home Loan Payments
Mortgage payments are difficult but are essential to creating wealth. If your remaining loan balance is large, you will pay more for interest. Follow the below tips to manage your mortgage payments:
- Make a Bigger Down Payment
Make a larger down payment to start producing wealth right from the beginning. Even a 3% down payment can be enough to buy a home. A larger loan balance means more money is needed for interest payments. Once you’ve gained a 20% equity in your property, you can begin saving on private mortgage insurance costs.
You don’t have to immediately shell out the entire 20%. Start with a 5% down payment rather than 3%, to get nearer to your home equity goal of 20%.
- Shorter Loan Period
If the mortgage period is shorter, you’d need to make higher payments compared to a long-term loan. You can set up your budget to accommodate the shorter loan period in order to quickly develop home equity.
- Make Bi-weekly Payments
Another surefire way to build equity is to make bi-weekly (not monthly) mortgage payments. The benefit? It helps to convert your 30-year loan into a 25-year loan, since the 12 monthly payments you pay each year become 13 per annum.
- Make Regular Payments
If you don’t have the budget to make bi-weekly payments, stick to making timely mortgage payments on a monthly basis. This will help you maintain a positive credit score and you will build your home equity with each payment.
To fulfill your mortgage, you need to find the right balance between your monthly expenses and savings. Plan and implement a suitable strategy that helps you produce wealth steadily, by gradually increasing your home equity.