Your equity can also be borrowed against using home equity loans or lines of credit and cash-out refinances, which you can then use to cover the costs of home repairs, pay off debt or achieve other financial goals.
But how exactly do you build up equity? Here are four strategies:
- Make a larger down payment. The size of your down payment directly equates to your home equity stake. When you buy a home, a larger down payment means that you have to borrow less money. For example, if you put 10% down, you’ll start your homeownership journey with 10% equity.
- Pay down your mortgage. As a homeowner, you’ll build equity every time you reduce your mortgage balance. Putting a little extra toward your loan each month (or even once a year) can help, too. Just be sure to review whether your lender charges prepayment penalties if you pay off your loan balance too quickly.
- Increase your home’s value. Making home improvements that boost your home’s value can boost your equity. Consider updating the roof, installing a new garage door or making other beneficial upgrades.
- Use a shorter-term loan. You could pay down your balance quicker with a shorter-term loan, which would also build your equity faster. If you have a 30-year loan, you might consider refinancing into a shorter-term option (like a 15-year loan). Think about the interest rates, closing costs and monthly payments before you decide to switch.