Equity is the money you make from owning your home. You can calculate your equity by subtracting the amount of principal you owe on your mortgage from your home’s value. Equity increases as you pay off your mortgage and as your home increases in value. It decreases should your home lose value.
Getting your hands on your equity is not easy. You can get cash from your equity in one of three ways: refinancing your existing mortgage, taking out a second mortgage, or selling your home. You can borrow against your equity with a home equity line of credit, but a HELOC is a loan that you must repay.
Following the housing crash in 2006-2007, home values plummeted, especially in markets like Las Vegas, San Francisco and Miami where they had appreciated quickly during the housing boom. US households lost over $7 trillion in home equity before prices recovered. Some 22 percent of all homeowners went “underwater;” they owed more on their homes than they were worth. Millions of homeowners lost their homes during the Great Recession when they could not meet their mortgage payments and owners had no equity in their homes.
Equity is the money you make from owning your home. You can calculate your equity by subtracting the amount of principal you owe on your mortgage from your home’s value. Equity increases as you pay off your mortgage and as your home increases in value. It decreases should your home lose value.
Getting your hands on your equity is not easy. You can get cash from your equity in one of three ways: refinancing your existing mortgage, taking out a second mortgage, or selling your home. You can borrow against your equity with a home equity line of credit, but a HELOC is a loan that you must repay.
Following the housing crash in 2006-2007, home values plummeted, especially in markets like Las Vegas, San Francisco and Miami where they had appreciated quickly during the housing boom. US households lost over $7 trillion in home equity before prices recovered. Some 22 percent of all homeowners went “underwater;” they owed more on their homes than they were worth. Millions of homeowners lost their homes during the Great Recession when they could not meet their mortgage payments and owners had no equity in their homes.
Now that the recovery is underway and prices are rising, equity is booming. During 2017, the average homeowner gained $15,000 in equity. By the end of the year, less than 5 percent of all homeowners still had negative equity.
As long as home prices are rising in your market, you are probably gaining equity. You can gain equity even faster by taking steps to increase the value of your property or decrease the amount that you owe on your mortgage. Here are six ways you can speed up the growth of your equity.
Three Ways to Reduce Your Mortgage Principal:
1. Make a Larger Down Payment
You don’t need to put 20 percent down to get a mortgage today. Last year, 61 percent of first-time buyers put down less than 6 percent. Lower down payment options, like FHA and down payment assistance programs, help families to become homeowners if they don’t have the cash available for a 20 percent down payment. With a lower down payment, however, homebuyers must repay a higher principal, which results in higher monthly payments, more interest, and less equity. Buyers who can afford a 20 percent down payment build equity faster. They also avoid the requirement to take out mortgage insurance.
Read More: Six Ways to Build Equity Faster