3 Ways to Build Equity

Equity is the money you make from owning your home. It can be determined by subtracting the amount of principal you owe on your mortgage from your home’s value. When home prices rise, most homeowners gain equity. These three strategies reduce your mortgage principal, granting you an equity boost in your home.

1. Maximize your down payment.
Low down payment options make homeownership accessible for many families who can’t afford 20% down. But just because you’re approved for a 3% down payment loan doesn’t mean you can’t put down 5%, 10%, or 15%. A larger down payment helps you build equity faster and could end up saving you thousands of dollars in interest over the course of your mortgage. 

2. Take out a shorter mortgage.
Most homeowners choose a 30 year mortgage to keep their monthly payments low. However, you’ll typically pay less interest and gain equity more quickly with a 15 year mortgage, making it a better overall investment. Also, just like the down payment, if you can’t go from a 30 year all the way down to a 15 year term, try 20 or 25 years instead.
 
3. Prepay your mortgage.
A lot can happen over the course of a 15 or 30 year mortgage. When your family earns raises or promotions that increase your income, funnel that money into your mortgage payments. Any extra money you put towards your home can go directly into your principal payment and reduce the overall interest you pay on your home. It will also lower the debt on your credit report and help build equity in your home.

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