Cash Out Refinance: What is Home Equity and How Can it Be Used?

What is Home Equity and How To Use It For Cash Out Refinance?

Did you know that about 40% of homes in America are mortgage-free?

If you own a home–or are in the process of buying a home–you know it can be a great investment. Owning property is a great investment once you start earning equity. 

If you want to know how to increase your home equity, you came to the right place. Read on to learn how to increase home equity.

What Is Home Equity?

If you own a home or have looked into owning a home, you must have heard about the term home equity. 

Home equity refers to the portion of your home that you own, and it’s free of a mortgage. For example, if the market value of your home is $350,000 and you have a mortgage for $250,000, then your equity will equal $100,000.

Lenders will use a similar equation when they calculate a home equity loan amount. 

Home loan, reverse mortgage and saving for a real estate - Prudent Financial Solutions

How to Increase Home Equity?

The dream of many homeowners is to build equity in their homes, so they can make a higher profit if they ever choose to sell.

To increase your home equity, you will need to either increase the value of your home or decrease how much you owe. Below are a few options that can help you increase the equity of your home. 

Make a Larger Downpayment

Traditionally, when you buy a home, you need to put down at least 20% of the selling price. However, some homeowners put down as little as three percent as a downpayment. 

Think of your downpayment as the kickstart to your home equity. 

One of the best ways to start growing your home equity right away is to put down a larger amount. When you put down three percent or less, you will have to pay for private mortgage insurance or PMI.

Make Improvements to Your Property

Another way you can build equity on your home is by increasing its value. By making the right home improvements, you can increase the value of your home. 

Some of the home improvements that will increase the value of your home include minor bathroom improvements, curb appeal, kitchen upgrades, and minor exterior improvements.

Tackle Your Mortgage

money coins saving set increase for concept investment fund finance and mortgage loan - Prudent Financial Solutions

As we briefly mentioned, one way to increase home equity is by paying down your debt. 

If you start paying more than your required monthly payment, you will be able to make a dent in your mortgage. Most lenders will have you pay the largest portion of interest initially, which means not a lot of money goes towards the principal.

If you start to put extra money towards the principal, you will pay down your debt. For example, if you have an extra $250 at the end of the month, you can put it towards the principal. 

Are You Ready to Use Home Equity the Right Way?

Now that you know how to increase home equity, it’s time you take control of your mortgage. 

If you want to increase your home equity, you either need to increase the value of your home or decrease your debt. You can do so by increasing your home’s value, making a larger downpayment, or putting more money towards the principal.

Are you ready to take control of your finances? Contact us today for a consultation.

April 22, 2021
Rear View Of Loving Couple Walking Towards House - Prudent Financial Solutions

What is Home Equity and How To Use It For Cash Out Refinance?

Did you know that about 40% of homes in America are mortgage-free? If you own a home–or are in the process of buying a home–you know […]