July 28th, 2018 12:39 PM by Jackie A. Graves, President
are three ways to build equity, or ownership, when you buy a home. One is to
put money down in a down payment. The second is to pay your lender back, and
the third is to take advantage of market upswings.
no secret that market momentum has been helping homeowners for a few years.
Sales volume is still climbing, says the National Association of REALTORS®.
You can still take advantage of low housing supplies and low interest rates to
invest in a home.
way to build equity is to put more money down on the home you want to buy.
Lenders have returned to tried and true models of income to debt ratios and
requiring that borrowers put more money down when they purchase a home. The
more you put down, the more instant equity you have. Putting more money down
also helps lower borrowing costs because it lowers risk for the lender.
you make your house payments, you build equity slowly because interest payments
at the beginning of a loan are much heavier than the money paid toward
principal. The longer you own your home, the less you'll pay in interest and a
greater share will go toward ownership, or building equity.
example, if you borrow $250,000 at 5%, your monthly payment is $1,342.05. The
first month you'll pay $1041.67 in interest, and only $300.39 toward reducing
your principal. At that rate, building equity may seem like it takes forever.
But only two years later, your interest rate lowers by $30 a month allowing $30
more to go toward reducing what you owe your lender.
can build equity faster by adding a little more to your payment, which removes
hundreds of dollars in interest and allows you to own your home in full much
other way to build equity is to allow the market to do it for you. Home values
historically beat inflation by one to two percentage points, but the last
decade has been anything but typical. However, all markets return to the norm,
so assuming a normal market is on the way, on the modest side, your home should
appreciate approximately one percent annually.
theory, if you purchased your home for $300,000, your home should gain $3000 in
value in one year. Home values are expected to rise about seven percent in
2018, so if you buy a home now, you could still do well.
variables from the weather to the Fed can all play a part in how quickly your
home builds market equity. But one thing is certain; you can't build equity
unless you're invested.
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