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Home Equity - An Opportunity to Build Wealth as a Homeowner

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3.14.2022
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Mortgage
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Meghan Boyles

Did you know that owning a home gives you an opportunity to build wealth? Creating equity in your home is one way you can continue to accumulate wealth – one of the many benefits of homeownership!

What is home equity?

Simply put, home equity is the difference between your home’s value and how much you owe on your mortgage. Think of it as how much of your home you actually “own.” To calculate your home equity, subtract the amount of your outstanding mortgage loan from the price paid for the property.

Home equity is an important asset that contributes to your total net worth. Therefore, having equity is a key factor in building wealth. It is also beneficial if you are planning to sell your home and make a profit.

How can I build equity in my home?

There are a few ways in which you can build equity, both before and after purchasing a home.

  • Shop for the best mortgage rate possible. Comparing lenders can save you thousands of dollars on your loan, so be sure to take your time and explore your lending options.
  • Make a down payment of 20 percent. Your down payment is the money you pay upfront to buy your home. Although a large down payment may not be required, it does mean a smaller loan amount, and thus, a lower monthly payment.
  • Pick a shorter loan term. If you can afford the higher monthly payment for a shorter loan term, this is a simple way to gain more equity quickly.
  • Make extra payments as often as you can. If your budget allows, making extra payments on your mortgage loan can quickly help build your equity.
  • Make smart home improvements. Renovating certain aspects of your home can increase its value. Consider the cost of renovations as not all improvements increase the home’s value.

What can I do with my home equity?

You’ve built up a substantial amount of equity in your home, now what? Home equity can actually be tapped into as a means of borrowing money rather than personal loans and credit cards. Your equity can be cashed out in a loan refinance or can be borrowed against as collateral for a Home Equity Line of Credit. You can use HELOC funds to make home improvements, pay off credit card debt, tackle student loans, purchase big-ticket items and more. Regardless of how you might utilize your home equity funds, it is important to remember to analyze how your decisions will impact your home’s value in the long run.

By: Meghan Boyles

Meghan is a mortgage marketing representative for Ameris Bank. Born and raised a Tar Heel, Meghan graduated from the University of North Carolina at Chapel Hill where she studied Marketing and Public Relations. Meghan currently resides in Atlanta, GA. In her free time, Meghan enjoys exploring Atlanta with her pup Brody and watching Carolina basketball.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Sources:

https://www.forbes.com/sites/forbesrealestatecouncil/2019/04/25/what-is-home-equity-and-why-is-it-important/?sh=21cc094e7fc8

https://www.nerdwallet.com/article/mortgages/home-equity-explained-matters