10 Ways for Building Equity and Boosting Home Value

10 ways for building equity in your home

1. Make a large down payment

The larger your down payment, the more immediate equity you have in your home. A substantial down payment reduces your loan amount, leading to quicker equity building as you pay off your mortgage. To help you plan your next home purchase, try HomeLight’s down payment calculator.

2. Refinance your loan to a shorter term

Refinancing to a shorter-term loan, like switching from a 30-year to a 15-year mortgage, can accelerate the rate at which you build equity, as more of your payment goes toward the principal balance.

3. Eliminate mortgage insurance

If you have conventional financing and have reached 20% equity, you can typically request to drop your private mortgage insurance (PMI), effectively reducing your monthly expenses and allowing you to build equity faster. Learn more about mortgage insurance at this consumerfinance.gov page.

4. Increase your home’s value

Enhancing your home through renovations or upgrades can significantly boost its market value, thereby increasing your equity. Focus on improvements that offer the best return on investment. (We’ll share the top ways to increase home value later in this post.)

5. Pay more than your minimum payment

Paying more than the required amount on your mortgage each month can shorten the loan term and build equity quicker. Even small additional payments can make a significant difference over time.

6. Consider switching to biweekly payments

Making biweekly mortgage payments instead of monthly can result in one extra payment per year, reducing your mortgage balance and increasing equity more rapidly.

7. Avoid rolling closing costs into your home loan

When refinancing, pay closing costs upfront rather than adding them to your loan balance. This prevents decreasing your equity and increases the rate at which you build it.

8. Stay in your home and let it appreciate

The longer you stay in your home, the more likely it is to appreciate in value, especially in a rising real estate market. This natural appreciation boosts your equity over time. Building equity is why the 5-Year Rule is commonly cited in residential real estate planning.

9. Avoid borrowing money on your equity

While home equity loans can be tempting, using your equity as collateral can decrease the equity you have built up in your home. It’s great to have equity when you need it, especially in cases of emergency or opportunity, but weigh the benefits carefully. Be careful not to let your equity be chipped away for low-priority expenses.

10. If you do withdraw equity, reinvest in your property

If you decide to tap into your equity, consider using the funds for home improvements or other investments that could increase your home’s value, thereby replenishing and potentially increasing your equity.

How can I estimate my home equity?

Estimating your home equity involves calculating the difference between your home’s current market value and the remaining balance on your mortgage. Here’s how you can get started:

1. Determine your home’s current market value: This can be done by getting a professional appraisal or looking at recent sales (called comps) of similar properties in your area. A top agent can also provide you with a comparative market analysis (CMA) that uses comps to estimate your home’s current worth.

2. Subtract your mortgage balance: Once you know your home’s value, subtract the amount you still owe on your mortgage. The result is your estimated home equity.

How can I increase my home’s value?

Here are 10 tips to boost your home’s value:

• Renovate key areas: Focus on high-traffic areas like kitchens and bathrooms for renovations.
• Enhance curb appeal: Simple landscaping and exterior improvements can make a big difference.
• Upgrade fixtures and finishes: Updating fixtures, hardware, and finishes can refresh your home’s look.
• Add a home office: Since 2009, the number of people who work from home has increased by 159%. A home office can add value and help your home sell faster.
• Finish your basement or attic: When you add livable space, you’re adding equity. For example, finishing a basement can have an ROI of up to 75%.
• Replace worn or shabby doors: Whether it’s your front door or your garage door, making improvements to these entryways adds direct value and visible appeal.
• Add energy-efficient features: Consider installing energy-efficient windows, insulation, and appliances.
• Improve your outdoor spaces: You can add equity by adding a deck or patio, or even installing a fire pit or outdoor fireplace.
• Apply a fresh coat of paint: According to a HomeLight survey, just painting the exterior of your home can increase value by more than $7,500, providing a 152% ROI, on average.
• Regular maintenance: Keep up with regular home maintenance to prevent value-diminishing wear and tear.

For more detailed insights and ideas on how to increase your home’s value, check out our in-depth post, “What Upgrades Increase Home Value?” This guide offers a deeper dive into strategies that can significantly enhance your property’s market value.

A top agent can make the most of your equity

Building equity in your home is a powerful strategy for enhancing your financial well-being and securing a better future.

Remember, the key to building equity lies in making informed decisions — from choosing the right mortgage terms to making smart home improvements and maintaining the value of your property.

The key to making the most of your equity when you sell your home is partnering with a top agent. HomeLight can connect you with top real estate professionals who can provide expert advice tailored to your unique situation.

Header Image Source: (Omri D. Cohen/ Unsplash)