Home Equity - How and Why to Build It | Blog | Better Homes and Gardens Real Estate Treasure

Amye Baker with 3 Tips on Building Equity

Amye Baker shares three tips about building equity in your home and how it can increases your buying power over the long run. For more great tips from Amye, and all of our Trusted Local Experts, follow us on Facebook, Instagram, and YouTube or check out our Tips page now!

What is Home Equity?

Do you know what home equity is? That is simply the difference between the mortgage balance that you have and however much your home is worth. Why is that important? Because that gives you buying power the next time around.

And if you don't know what your home is worth, that's what a qualified, local, real estate expert in your market can help you find out. We're here to help you find out what your home's equity actually is.

Another thing to keep in mind when you're considering the equity in your home is whether it's hard equity or soft equity. And what I mean by that is the first year, possibly two that you own your home, banks and other lenders will consider soft equity if the market starts to change. That could be an increase or a decrease to home prices. After about two years, every penny that you're paying towards your mortgage creates some sort of equity that you would be able to use the next time you go to sell your home, and that's power for you in the real estate market.

Buying When Interest Rates are High

Let's talk about the silver linings of buying a house even though the interest rates are higher than they have been. First of all, you are paying yourself and what I mean by that is no matter what your interest rate is on a mortgage payment, 6%, 7%, paying rent is at 100% interest rate. So, if you think about it, you're really saving 94 - 95%, somewhere in that neighborhood, by owning your own home.

Second of all, in paying yourself by paying that mortgage each month. You build equity. That equity when you sell that home may help you either buy the next house in cash, depending on how long you stay, or it may give you a larger amount to put down as a down payment.

So, when the rates are lower and you buy that next house, you will have a lot of equity to use as a down payment.

The last benefit to share with you is that owning a home at a higher mortgage rate will pay dividends. And what I mean by that is, when everyone sees that the rates are dropping, everyone's going to dive into the buying pool. That's going to create bidding wars. That may also force up home prices one more time.

And guess who gets to take advantage of that? The person who owns the home. That would be you. So, take a moment and reflect, how much do you want to pay somebody else's mortgage? Or how much do you want to line your own pocket?

Have more questions? Give us a call at Better Homes and Gardens Real Estate Treasure. We're here to help.

Real Estate is the Long Game

So it might be time to ask yourself, is buying less of a house at a more expensive mortgage rate worth it? The answer is yes. Real estate is the long game. And even if you're not able to find the perfect house, the one that you want, the house on the hill, that's okay. It's a steppingstone process. Sometimes we buy the house that is available and fits our budget today, so that several years from now, maybe even only two or three, we can sell it when the market improves. That gives you more buying power to buy a bigger house with the equity that you have as a possible down payment, and you get the next house in your steppingstone.

Eventually, through all those processes, buying and selling, you can get that house on the hill. You need to talk to a qualified local real estate expert in your market. One like Better Homes and Gardens Real Estate Treasure, because we can help you find a house for your budget today and listen to your dreams for tomorrow.