Building Home Equity: 4 Tips

There are two important methods to building home equity: first, pay down the principal on your mortgage as fast as possible and, second, invest in the long-term care of your property. If you do these two things, even if your home drops in value, you should maintain a high degree of equity and stability thanks to the investment.

#1 Make Mortgage Payments

The most important thing you can do to keep equity in your home is make your mortgage payments. If you fail to make payments, regardless of how much you have paid in the past, you can lose the entire sum of your equity to foreclosure. It is also advisable to elect mortgage payment options that put you on the fastest track possible to paying off the loan. Routinely refinancing your loan for longer maturity, electing smaller monthly payments or pulling equity out through cash-out options will drastically decrease the equity you can count on in the future.

#2 Maintain Safety and Essential Functions

There is no greater threat to the value of your property than a safety concern. A home is, above all, a shelter. As such, it must meet legal and safety codes in order to protect the individuals making use of the shelter. The key items that can threaten this safety are often the most expensive to maintain. Namely, the roof, plumbing, electrical and other utilities in the home need to be inspected and maintained. If you see a sign of water damage or leaking from your roof, repairing the problem immediately is the only option to invest in the value of your home. As a renter, you could ignore these issues. As an owner, they become your greatest responsibility.

#3 Upgrade Key Features

It is not necessary to pour money into upgrades on your property in order to maintain equity. However, a few well-chosen changes can drastically increase the value of your home. For example, replacing appliances can cost as little as a few thousand dollars. At the time of sale, however, new appliances will open up your home to a whole host of buyers. Investments in the kitchens and bathrooms tend to bring the highest return on investment. Less expensive changes, such as simply changing the hardware on cabinets and painting walls, will even produce a result. Installing modern flooring, even less expensive laminate, can give your home the look it needs to compete with other homes on the market.

#4 Consider Limitations

It is never a good idea to own the most expensive home on the block. This tells potential buyers they have little room to gain any equity of their own. For this reason, it is always important to ensure you do not out price your neighborhood. Keep in mind the comparable properties you will be up against when it comes time to sell. If you invest too much in your home, you will not be able to recover, and the equity will be lost. Instead, make smart changes but spend only what is prudent within your neighborhood.