Wise Home Buying Helps Build Equity

Dec 6, 2017Real Estate Tips

Understanding how home equity works can help you make wise home buying decisions! For example, the price you pay for a home, along with the down payment you provide, creates the initial equity position you’ll have in your home.

Good equity is important for a number of reasons! Before we go further, let’s define what home equity is.

Equity is basically the difference between the debt outstanding against a home, and its market value. In other words, equity is the “free and clear” cash value of the home after all mortgages and liens are paid off. Equity means cash in your pocket when you sell!

Once you own a home, you can build equity in a number of ways:

  • Paying down your mortgage by making additional payments to principal
  • Making improvements to the home that increase market value
  • Passive increases in value that happen in accordance with market conditions

Having good home equity offers several benefits. For example, you can borrow against the equity of your home to finance a remodeling project, or to pay for a child’s college education. What’s more, the interest on a home equity loan may be deductible from income taxes if you itemize your return.

If you plan to sell your home in the future and “trade up” to a larger or newer home, the equity you’ve built in your first home can be the down payment for your next home.

If you plan to retire in your home, your equity can be a source of future income, via a reverse mortgage. A reverse mortgage is a way of selling your home without having to move for a number of years. Reverse mortgages require a great deal of caution and planning, but they’re another way home equity can provide a benefit.

The best way to get your home equity off to a good start, is to work with an Exclusive Buyer Agent who will provide you with market guidance and recent sales comparisons! This helps you avoid overpaying for a home. By making an informed offer, and by making the best possible down payment, you’ll be in a sound position to build home equity.

Ready for home buying help? Find an Exclusive Buyer Agent in your area today!

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