We have all heard that purchasing a home is an investment. That's because you build equity! What is home equity, and how can you increase it to enhance your net worth?
What is equity? How do you calculate it?
Home equity is an asset that comes from owning your home. It is the current market value of your home, minus what you owe. You want to see a positive number. Home equity is essentially the part of your home that you actually "own."
Current appraised value - current mortgage balance = equity
Why is equity important?
Home equity can be a long-term strategy for building wealth. In fact, home equity is usually the most valuable asset a household has. Some people refer to a mortgage payment as a "forced savings," because with each payment you accumulate more equity. In a previous blog post, we looked at the pros and cons of renting vs. buying. When you rent, you will never see the money from your monthly payment again.
In addition to increasing your net worth, holding equity is beneficial for other reasons:
- You can borrow against your equity and invest. Some people choose to borrow and start a business, invest in more real estate, put a down payment on a new home, or renovate their current property to increase the value of the home.
- Equity is vital when selling. Holding positive equity in your home will allow you to benefit and profit from your sale.
How do I increase equity?
An increase in equity can come from:
- Increasing your monthly mortgage payment
- An increase in market value over time
- Renovate or remodel your property
- Making a larger down payment when buying your home
Are you ready to invest in a home? Let Music City Experts help you find the home that is just right for you! Give us a call 615.815.1295 or reach out to us online.