One of the major benefits of homeownership is you naturally build equity over time. Owning a real estate property is a great financial choice for your family. Eventually, your home will be paid in full, and you will have the opportunity to live mortgage-free because of the equity that you’ve gained in the property. Over the years, you can build wealth with homeownership.
Home Equity: What You Need to Know
Home equity is the percentage of value in the home that is owned by you. When you purchase your first home, you likely don’t have enough cash to pay for the home without financing. You will need to come up with a down payment, then your bank or financial institution will cover the rest of the purchase with a mortgage.
In the beginning, your equity is basically the down payment, which means most homeowners start with 5 – 20% in equity. Repeat home buyers have a bit more equity since the equity value of their previous home is often rolled into the purchase of the new home. Over time, you will continue paying your mortgage, which means the percentage of ownership will shift from the bank to you.
Tips for Building Equity
As you are preparing for retirement and the future, building home equity should be an important part of your strategy. Here are a few tips to help:
- Home Appreciation: When it comes to real estate, it is important to keep the long-term strategy in mind. Home value grows over time. So, if you buy a property and hold onto it for years, it’s likely your home will naturally increase in value, which increases the equity you have in your property. You benefit as the value of the real estate goes up.
- Pay Down Your Mortgage: You will need to keep up with the monthly mortgage payment. But also look for opportunities to make extra payments on the loan. Work bonuses, tax returns, and inheritance money can be a great way to pay down your mortgage. The faster you pay off the mortgage, the less interest you will pay over the years… helping you pay off the loan more quickly.
- Biweekly Payments: If your income supports a faster paydown schedule, consider making biweekly payments on your mortgage. This strategy can cut as much as 5 or 6 years off your payment schedule for a 30-year mortgage.
- Home Improvements: Some families don’t have enough cash in pocket to pay extra on their mortgage. But they choose to invest sweat equity in upgrading the home. Renovations and home improvement projects that add meaningful value can have a positive impact on your home value, helping you increase the selling price when you need to move in the future.
Finding the right home is essential so you can prepare for the future. Talk to our team at DUFFY Realty for information about real estate purchases in the Atlanta area: (678) 318-1700