How To Maximize and Build Your Home Equity In Three Steps

[Jan 21, 2009.]

 

Step 1 - Pay Off Your Existing Mortgage Debt
Home equity is defined your home's value subtracted by the amount of existing mortgage debt.  If you are consistently paying your mortgage payment every month, congratulations - you're on the right track. By paying your mortgage every month, you are slowly, but surely reducing the amount of existing mortgage debt. One recently common exception is for homeowners who make interest-only payments. While first mortgages may allow these interest only options, many home equity lines of credit typically offer this interest only payment.

As a result, the opposite effects can occur if you aren't careful with your finances. If you borrow from your home excessively, refinance every few years, or miss a few mortgage payments, you can start saying goodbye to the equity in your home. As a general rule, if you pay attention the amount of mortgage debt you owe, your home's equity will take care of itself.

Step 2 - Consider Home Improvements and Additions
If you're looking to fast track the equity in your home, home improvements can give your home that extra boost. Home improvements come in a wide range of projects as well as costs. Depending on your objective, different types of improvements will affect your home's equity in different ways.

If you're looking to strictly boost the equity in your home for appraisal's sake, you'll find the most "bang-for-the-buck" projects in kitchen, lighting, plumbing, and street front upgrades. Typically, these home improvements are mainly visual and help boost your home's curb side appeal. If you're thinking long term, consider the areas where you'd best enjoy the upgrades. While a great looking front yard could boost your home equity by a few thousand overnight, you might better enjoy an updated master bedroom and bathroom instead.

Step 3 - Sit Back and Let Things Run their Course
So you pay your mortgage every month and you've made the necessary improvements to your home, now what? Well, the final step is let things take its course - yes, it's time to sit back and realize that you can't control every aspect of your home. During this time, many homeowners are reminded of the home buyer's mantra, "location, location, location."

As many homeowners have seen during this recent housing crisis, the equity in a home is quite susceptible to nearby market conditions. If homes aren't selling in your area, or if nearby homeowners are facing foreclosure, it can take quite a toll on your home's equity. Likewise, if markets are booming around your community and there is a strong demand for homes, your equity will respond accordingly. For this reason, it's always a good idea to closely examine the location of your home to see how it might be affected by market trends and local businesses.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.