How Can I Build Home Equity More Quickly?

November 1, 2016 - 4 min read

Increase Your Home Equity Today

Of course you’d love to have more home equity. Who wouldn’t?

Aside from aggressively paying down your mortgage’s principal balance, though, you’re unsure of how to get it.

The good news is that there are several ways your home equity can increase, aside from making extra payments on your mortgage each month.

Home equity is wealth and, for many U.S. households, equity in a home (or homes) represents the largest percentage of their total net worth.

Building wealth through real estate is how many people build their retirement nest egg. It’s why financial experts often recommend ; and, why homeownership has always been considered part of the American Dream.

Since 2012, home values have climbed by more than 30% nationwide which has increased U.S. homeowners’ net worth by trillions of dollars.

Thinking of buying a home? The home equity you get can help build your bottom line.

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What Is Home Equity?

Home equity is a financial term. It’s the difference between how much your home is worth, and how much is owed on your home.

For example:

If your home’s value is $350,000...

And your current mortgage balance is $250,000...

You hold $100,000 in home equity.

As a homeowner, it’s difficult to know precisely the amount of home equity you hold on any given day. It’s often a guess or a feeling. You can never know your home’s exact value without .

There are two notable exceptions, however.

On the day your purchase your home, your home equity is equal to your downpayment.

If you used the , as an illustration, and you made the of 3 percent, your home equity would be 3% of your home’s purchase price.

The other exception is when you have your appraised for either a home loan refinance or for personal reasons, such as estate planning.

Home appraisals are meant to determine your home’s fair market value. The difference between this value and the amount owed is your home equity.

NOTE: Certain refinance programs, including the and the , don't require a home appraisal.

What Can I Do With Home Equity?

Home equity is an asset, and building your assets builds your personal wealth. For many people, this is reason enough to manage home equity closely.

However, home equity provides additional homeowners benefits, too.

Notably, because home equity is “dollars on paper”, it can be borrowed against — often at low costs.

Home Equity Lines of Credit (HELOC) and Home Equity Loans (HELOAN) are two common tools through which homeowners can borrow against their equity; and, with current mortgage rates low, has re-emerged as a popular home equity-accessing tool.

When you borrow against your home equity, you can use your equity for whatever you wish. You can use it to pay for college expenses, to start a business, to remodel a home, or to consolidate credit card debts.

You can also use home equity to purchase additional homes for your personal use, or for investment.

Just remember that when you borrow more money, your monthly mortgage payment is likely to increase.

Ways To Create Home Equity

Home equity is a function of your home’s value and the amount owed on it. As a homeowner, you can affect both of these figures to help build your equity balance faster.

Here are a few ways your home equity can increase:

Your home’s value rises because of market forces

When home values rise, home equity is created and, according to the government, home values have climbed close to 6% since last year, on average, nationwide.

If you own a home, you may have more home equity than you realize.

Online tools can help you find your home’s approximate value, or you may just want to commission an appraisal — especially if your current loan requires mortgage insurance, or is backed by the FHA.

It’s common for homeowners once they’ve accumulated sufficient home equity.

Your home’s value rises because you’ve improved it

As a homeowner, you’re able to increase your home’s equity percentage with a well-timed, purposeful renovation.

However, not all renovations boost equity. It’s important to manage the cost of the remodel versus its utility to your household versus its expected return-on-investment.

You may not want to spend huge amount of money on new storm windows or a backyard pool if the upgrades won’t improve either your life or your home’s value. This is especially true if you’re planning to move within the next few years.

Remodeling a bedroom may have less impact on your home’s resale value than you expect.

That said, homeowners frequently build home equity via renovation and remodeling. It’s common for everyday homeowners; and, crucial for real estate investors, whose livelihood is linked to building home equity in a property quickly.

Your mortgage balance decreases because you’re paying it down

As a homeowner with a mortgage, it’s your right to choose how fast your loan gets repaid. With each payment you make, you pay down loan principal, which increases your home equity (all things equal).

You’re allowed to make additional mortgage payments beyond your monthly statement, too.

A few well-known principal reduction strategies for homeowners include:

  • Sending extra principal payments with your regular mortgage payment each month, which reduces your total amount borrowed
  • , which is far heavier on principal payments each month as compared to a 30-year loan.
  • Making bi-weekly mortgage payments to your bank

Another option, with mortgage rates low, is to refinance into a lower-rate mortgage loan. Then, at the new, lower rate, continue to make your same mortgage payment as before.

In this way, you will pay the same amount monthly, but your payment will be loaded with additional principal, which helps to build your home equity more quickly.

What Are Today’s Mortgage Rates?

When homeowners think about building home equity, they tend to focus on housing market gains and how it will build their wealth. However, market gains are outside of your control. Consider focusing on principal reduction and strategic home improvements instead.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

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Paula Pant
Authored By: Paula Pant
The Mortgage Reports contributor
Paula Pant is a real estate investor and the founder of, a popular finance website.