Many potential homebuyers are told that they will have equity in their home, but this is not often explained beyond a home being considered a financial asset. To dive deeper into what it means to have equity in your home, we’ll first define what equity is.
Equity can be considered the degree of ownership an individual has in an asset after subtracting the value of all debts associated with that asset. For real estate equity, this would be the difference in the value of your home and the amount you owe on your mortgage. The funds you would receive from selling your home would be equal to the amount of equity that you currently have in your home. Though it may seem like it could take years or a booming real estate market to be able to build equity, there are a few means to building equity.
A great way to steadily build equity is to pay off your mortgage. Using an amortization calculator can show you how many payments it will take to impact the principle balance of your mortgage. With each deduction of the principle you increase your home equity. If you plan on living in your home for several years, this is a consistent way to build equity without having to make significant upgrades to increase the market value of your home.
Homeowners can also add to the value of their home through forced equity. Appreciation of your home value takes time, but by improving the property condition you can create equity in a shorter amount of time. This is especially relevant for individuals interested in purchasing an investment property below market value and upgrading cosmetic features such as floors, appliances, and paint. Homeowners can also help increase their home equity by maintaining the condition of their home through routine maintenance and upkeep. Increasing the value of a home without having to wait years to pay off a fraction of your mortgage is an appealing factor to this method of increasing your home equity.
So why is it important to build equity in real estate? Real estate builds wealth more consistently than other asset classes such as stocks and bonds. If you would like to buy a home to start building equity or sell your home to take advantage of the equity you have already built into your home, we at The Peters Company would love to help! Please give us a call at 678-921-1470 to learn more about this awesome opportunity to help build your wealth!
Written by Elizabeth Gill