FIVE WAYS TO BUILD EQUITY FAST AS A FIRST-TIME HOMEBUYER
07 Apr, 2021
Once you own a home, you earn equity in it every time you make your standard mortgage payment. As you pay your mortgage down, the difference between the home’s value and the amount you owe is the equity. It increases with every payment.
But there are five other ways to build equity fast as a first-time homebuyer. Here are our favorite ways.
Make a Large Down Payment
If you haven’t bought a home yet, consider making a large down payment. While it’s not required to get most loan programs at Valley Mortgage, a large down payment gives you instant equity in your home.
While you shouldn’t make yourself cash poor, if you have enough money to put down on a home and keep aside for emergency expenses, you can increase the equity in your home faster.
Make Larger Mortgage Payments
Most loans allow you to make larger payments toward the loan’s principal when you want. Whether you make consistent extra payments each month, such as $100 extra a month or you make one lump sum payment per year, the outcome is the same – you pay the principal balance down faster and grow your equity faster.
Use Bonuses or Tax Refunds to Pay your Mortgage Down
Any time you come into money, whether it’s a tax refund, stimulus payment, or work bonus, consider paying it toward your loan’s principal. The large lump sum will decrease your principal balance faster, giving you instant equity in your home.
Make Home Improvements
If you have the capital, make home improvements in your home that increase its value. The higher your home’s value, the more equity you have no matter how much you’ve paid toward the loan’s principal.
Remember, not all home improvements offer a dollar-for-dollar return on your investment, so make sure you know how much the renovation will improve your home’s value before starting.
Refinance into a 15-Year Term
If you have a 30-year term but think you can afford the larger 15-year payment, you’ll build equity faster. As a first-time homebuyer, you may want to stick with the 30-year term for a few years until you’re used to having the mortgage payment.
As your income increases or your financial situation improves, though, refinancing into the shorter term ensures you build equity faster. With a 15-year term, you pay much more principal than interest, which means you’ll owe less and less as your home appreciates.
What can you do with your Home’s Equity
Once you build equity in your home, you may wonder what you can do with it. While it’s perfectly happy sitting in your home untouched, there are ways you can use it before you sell your home including:
- Pay for home renovations – Home renovations can get expensive but putting the costs on a credit card or taking out a personal loan can get expensive. Tapping into your home’s equity gives you access to attractive interest rates/terms and helps improve your home’s value.
- Consolidate debt – If you have a large amount of high-interest debt, you may save money by consolidating it using your home equity. If you qualify for a cash-out refinance, you’d have one loan with a higher principal balance, but a competitive interest rate to help you pay off your debts without the high interest rates credit cards charge.
- Cover large expenses – If you have large expenses coming up whether medical expenses, college expenses, wedding expenses, or any other large expense, you can use the equity you’ve build up in your home to pay them.
- Emergency fund – Many people take equity out of their home and save it as an emergency fund. After the year we had in 2020, it’s not a bad idea to be prepared.
Every First-Time Homebuyer Should Know How to Build Equity
Knowing how to build equity in your home faster is important. Your home is one of the largest investments you’ll make in your lifetime. Knowing that you have the security of the equity to tap into or to pocket if you sell your home can bring great peace of mind.
Building equity faster than just making your minimum mortgage payments and waiting for the home to appreciate can help you make the most out of the investment in your home. With today’s low rates, it’s a great time to look at your home’s equity and see if you can tap into it to realize some of your largest financial goals today.
Contact Valley Mortgage in Fargo, ND
If you’ve decided it’s time to buy a new home or refinance your existing mortgage, let’s talk. Our Valley Mortgage professionals are happy to walk you through your options and match you up with the perfect loan program. We have many options available for borrowers with almost any credit score, amount of equity, or home financing requirements.
Contact us for a no-obligation conversation. Valley Mortgage is the largest independent mortgage lender in North Dakota and northern Minnesota. We’ve be helping folks like you for more than 38 years. If you haven’t reviewed our website, click here. Please call us at 701-461-8450 to get all the details about home mortgages and refinancing. There’s no cost, no obligation. Valley Mortgage does all the processing right here in our Fargo, ND office.