How to Build Equity

Home Equity

Knowing how to build equity in your home can save money over the long run, as you'll pay less interest on your loan and will net more cash if you sell your home. The more equity you build, the more your home will be worth above what you owe on your mortgage. Sometimes, equity happens without you doing anything, such as when a nearby school is rated highest in the state or your neighborhood becomes more desirable due to other factors. But most of the time, your hard work will have an influence on the amount of equity in your home.

Instructions

Build Equity in Your Home

1. 

   Pay extra toward your principal each month when you make your mortgage payment. Most lenders allow you to add any amount you wish to your payment to be applied toward the principal owed. You may have to specify "extra to principal" on your check; check with your lender.

2. Make an extra principal payment to your loan whenever you receive an unexpected cash bonus, gift or savings. If you want to splurge on other things, keep half and put half toward your mortgage. You can quickly build equity if you do this consistently.

3. Update your kitchen and bathroom. Generally, you get the most return for your money on bathroom and kitchen renovations than any other part of the home. These areas tend to look dated quickly, and making them fresh and modern will give your whole house a newer look and feel--and as a result, more equity.

4. Finish the basement or bonus rooms. Adding more living space will greatly increase your house's value, and finishing off space that's already there is much more affordable than putting on a whole new addition. You can even do some of the work yourself to save on costs.

5. Consider refinancing your 30-year mortgage to a 15-year loan, which build equity much faster. Your monthly payments will be higher, but you will pay more toward principal each month and far less in interest over the life of your loan.

Tips & Warnings

• Replace older fixtures, lighting and door handles. These small changes will increase your house's equity by making it more appealing and newer looking to prospective buyers.

• Don't take out a home equity loan, which quickly eats up your equity.