It’s never been easier to build equity in your home. With no shortage of options to refinance and low mortgage rates, now is a great time to start getting more out of your home.
Yet, I often talk with homeowners who are confused about how their home equity works. It’s not uncommon for those with mortgages to be unclear about how home price appreciation and equity determine a property’s value.
Simply put, your home’s equity is how much money your home is worth minus what you owe on your mortgage.
Here’s an example. Let’s say your home is worth $350,000, and your mortgage balance is $300,000. That means you have $50,000 in available equity that you can use to fund home renovations, large purchases, education costs, and more.
As for what determines the value of your home, there are several factors in play. Price appreciation over time can add value to your home. As time goes on, your home will be worth more.
Another factor is supply and demand. Fewer available homes mean higher home prices and subsequently higher home values. This has been a big issue in the present market especially.
So, now that you have a better idea of how equity and home values work, let’s look at three strategies to help you build even more equity in your home.
1. Remodeling & home improvements
Would you pay top-dollar for something outdated? Probably not.
Few things are as effective at building equity in your home as making improvements. Whether you’re looking to increase value over the long term or entice buyers with savvy upgrades, the reasons to invest in your home are endless.
Here are smart ways to maximize your home’s value while building serious equity:
- Upgrade your kitchen. Granite counters, abundant storage, and top-notch appliances go a long way in building your home’s value.
- Work from home like a pro. Are you ready to get creative with a dedicated home office? With more people working from home, a dedicated workspace is a feature more people expecting.
- Upgrade your bathroom(s). Do you have a primary suite that needs some TLC? Try new tile, a soaking tub, and dual sinks with plentiful counter space for improved value. Even freshening up a powder room can produce value.
- Backyards should be front of mind. Modest landscaping, a simple fire pit, and a new deck can turn your backyard into an outdoor living space.
- Finish that basement. Add livable square footage while increasing versatility. It’s hard to go wrong here.
Even a fresh coat of paint can improve the value of your home. Appraisers, refinancing lenders, real estate agents, and buyers typically reward home improvements.
2. Refinance for lower rates & a shorter loan term
With interest rates still hovering near historic lows, refinancing your mortgage could free up a ton of home equity. Assuming you’re current on your mortgage payments, refinancing could lessen your monthly statement considerably.
Let’s say that you lowered your monthly payment by $500 by refinancing. However, instead of paying $500 less every month, you keep paying what you’ve always paid. Essentially, you’re now paying an extra $500 every month onto the principal portion of your mortgage payment.
Congratulations, you’re on your way to paying off your mortgage sooner!
Refinancing can help you shorten the overall term of your mortgage simply by applying your current payments to a newly reduced mortgage bill.
This means that you own your home faster, giving you a greater chunk of your home equity.
I can help you plan out whether this is a strategy that can work for you. I’m available to perform a mortgage check-up and crunch the numbers to help you build equity in your home.
3. Turn your property into an income stream
Do you have a finished basement? Try converting it to an in-law suite with a separate entrance.
Is there space above your garage that can be transformed into a legal unit? How about a guest house that can be rented on Airbnb or VBRO?
Your home doesn’t have to be a proper multi-unit building to generate income. You can take steps to monetize a single-family home, too.
If you’re looking to build equity in your home, appraisers will value the potential for income. Moreover, the revenue you bring in can be used to pay down your loan’s principal, thus freeing up even more equity.
I’m here to get your home working for you
There are many ways to build equity in your home. Deciding the path that’s best for you is a personal decision that’s different for everyone. That’s why I provide free resources for homeowners to weigh their options.