Your home is likely the biggest investment that you will ever make. It is important to research the housing market and get the most bang for your buck. Even though it may seem as though today’s dream home is your final stop, it is imperative to approach every home purchase with an eye toward resale value. Once you are in the door you have the opportunity to build equity. Think about ways to invest in your home and secure funds for your future.
1. Make a Large Down Payment
A large down payment sum at the beginning allows you to build more equity right away. Aim to pay upwards of 20% down on your new home’s value. It may be tempting to choose a bigger property and pay a single-digit percentage down payment but make sure that you can truly afford your home in the long term. The less money you must borrow, the more equity you may build. You don’t build equity with money that is not yours. Look to pay more than the minimum down payment.
2. Refinance Your Mortgage
Plan to pay off your home as soon as possible so that you can achieve 100% equity. Look at fha streamline refinance options to establish a shorter loan repayment schedule without a mountain of documentation. You can save money in the long term by paying larger monthly payments in the short term. Consider transitioning from a 30-year mortgage to a 15-year mortgage. Keep potential closing costs in line when thinking about refinancing.
3. Skip Mortgage Insurance
Mortgage insurance protects the lender and places more financial burden on the homeowner. It creates a financial net for the lender in case you don’t pay off your loan in time. Skip the total annual expense by making a larger down payment at the start. You will be able to avoid mortgage insurance costs automatically by paying 22% down or request an end to the insurance when you pay down 20% of the property value. Get rid of private mortgage on an FHA loan with 10% down after 11 years or refinance earlier.
4. Put Gifts Towards House Payments
Using cash gifts and tax refunds towards home payments can help you to recoup more money later. Direct your inheritance, holiday bonus, or financial rewards toward your mortgage. Gift cards can sometimes be redeemed for cash, too. This can help you to stay on track and enable you to pay off the full loan more quickly. Ask about using financial gifts to pay toward your mortgage principal rather than interest. Watch out for prepayment penalties and talk to your lender. You must pay toward the principal to build equity.
5. Renovate Your Home
Smart renovations can improve your experience of living in the home now and put more money in your pocket later. Bathroom and kitchen renovations typically achieve the highest return on project investment. Evaluate the final sale price of recently renovated homes in your neighborhood to measure the possible return on your chosen renovation budget. Making energy-efficient choices may qualify you for a tax credit and save you money on monthly bills. Start projects that you can finish and work with trustworthy contractors to stay within budget. Improvements of all sizes and scopes can lead to meaningful returns. Consider new landscaping and paint for eye-catching curb appeal.
6. Sell Strategically
Wait to list your property in a seller’s market. Your house differs from the large purchase of a car because its value appreciates over the years. The combination of attractive renovations and high buyer demand for limited properties can work in your favor. Keep your property in good shape to sail through contingencies like home inspections. It may be advantageous to wait and rent out your property until a cool market heats up again.
Building equity in your home is part of responsible homeownership. Invest in your current home to climb the property ladder later.