How to Build Equity in a Home

Most people believe that the only way to build equity their home is to pay off the mortgage loan. That is only one of many ways in which to build up your investment. Home equity is the difference between your home's market value and the debt owed, your mortgage. So, to build equity, you must get rid of the debt as fast as you can.

Difficulty:

Easy

Instructions

1. Start your home ownership journey with the equity of your down payment. It doesn't disappear after closing, but becomes home equity. So, make as big a down payment as you could possibly afford. You will then move into your new home with a big asset in the form of equity.

2. Stay current on the repairs and maintenance. Keeping your home in tip-top shape will preserve the value. Most people try to renovate, but sometimes that can backfire, causing you to add more debt to your home than value. Because the goal is to eliminate the debt, renovation is sometimes counterintuitive. You can easily maintain your home without adding debt.

3. Pay your home off early, of course. Adding a little extra to the monthly mortgage payment is enough to accomplish this. It pays down the debt faster, leaving you with equity in your home.

4. Get a shorter mortgage. The most common mortgage term is 30 years, however, it is not a requirement for buying a home. You can take out a mortgage with a shorter term, such as 10 or 15 years. You monthly payments will be higher, but you will be building equity at a much faster rate than those on a 30 year term.

Tips & Warnings

• Adding debt to build equity is a maneuver that is best left to the pros. This includes refinancing. This risk is often too high for the average homeowner.