One of the most buzzed-about benefits of homeownership is the ability to build equity in your Pittsburgh home. Equity is merely the difference between what you owe on the home and your home’s value. If your home is currently worth $250,000 and you owe $150,000 on your home, you have $100,000 equity in your home.
Equity can be an important financial tool that only home ownership can provide. You can use the equity in your home to purchase a new, larger home. Or, you can use the equity in your home to make home improvements, consolidate other debt, or plan for your retirement.
It would be best to consult your financial advisor to help you determine if using your home equity would be the right decision for you and your financial goals.
Another advantage to increasing your equity is to eliminate private mortgage insurance (PMI). If you obtained a mortgage with less than 20% down, you might have private mortgage insurance as part of your monthly payment. When you reach 20% equity of your home’s original value, you should be able to eliminate that additional cost.
Increased equity also increases your net worth. Knowing your total net worth is an integral part of your financial planning.
In the local real estate market, we have been experiencing a seller’s market. There is such a demand for homes to purchase, buyers have been willing to pay over asking, increasing our appreciation rates. We have seen greater appreciation in the Pittsburgh market that is outside our norms.
Appreciation is not the only way you can build equity in your home. Let’s take a look at five ways to build equity in your home.
1. Make a large down payment.
There are many different mortgage options. Each mortgage option has established a minimum downpayment for that program. If you have the funds to put down a larger sum, you will be increasing your equity. This may not always be the best use of the extra cash you have on hand, so be sure to consult with your mortgage lender.
2. Pay an additional amount on your mortgage.
Paying an additional amount on your mortgage can be done in several ways. You can include an additional amount of money on each mortgage payment, pay an extra payment, or pay a lump sum per year. Whatever amount you pay in addition to your monthly obligation goes to paying down your principal loan balance. As you reduce your principal amount, you will reduce the interest you pay on your loan.
3. Make improvements to your property.
Some improvements you make to your home can add value. But, I caution you that not all upgrades will bring added value. Most improvements will give you a percentage increase based on the cost, but not the improvement’s total cost. It is also important to note that the country’s different regions may have a different value for specific improvements. A deck will not bring the same value for a cold climate as it does in a warmer climate. Here is a link to a cost vs. value calculator https://www.remodeling.hw.net/cost-vs-value/2020/ from Remodeling magazine.
4. Obtain a shorter-term mortgage.
Some lenders offer both a 30-year mortgage and a 15-year mortgage option. If you go with the 15-year option, you will pay a higher monthly amount, but you will pay your principal down quicker.
5. Be diligent with home maintenance.
There are generally two negotiations in any home sale. The first is the initial agreement to purchase. The second usually occurs after the home inspections. Often, the items that show up in the inspection are deferred maintenance items. The buyer will request these items be repaired or ask for a credit at closing to cover the cost of the items that came up in the inspections. If you follow a regular maintenance routine, your home will remain in tip-top shape. It will be less likely that the inspection uncovers any defects in the property. Here is a checklist from DIY Network that breaks down typical home maintenance items for an easy to follow plan: https://www.diynetwork.com/how-to/maintenance-and-repair/repairing/checklist-for-a-trouble-free-home
Your home is typically one of the most significant investments you will make. Building your equity will help you protect that investment. Your mortgage lender and financial planner will be able to guide you to increase and protect your home equity.
I have over 17 years of experience selling real estate in our region. I can help sellers keep the most equity in their pocket when they sell their Pittsburgh home.
Contact me by phone at 412-848-3907 or email at firstname.lastname@example.org to schedule a free consultation to discuss your real estate needs.