Building home equity is a smart financial move that helps you increase the value of your investment while opening opportunities for borrowing, such as a Home Equity Line of Credit (HELOC). Although equity typically builds over time, there are strategies to accelerate the process. Here are 15 ways to increase your home equity more quickly.
1. Choose a Shorter Loan Term
Opting for a 15-year mortgage instead of a 30-year loan allows you to build equity faster. Although the payments are higher, more of each payment goes toward the principal rather than interest. Shorter loan terms often come with lower interest rates, which helps reduce overall costs.
2. Put Down a Larger Down Payment
A larger down payment when purchasing a home gives you instant equity. A 20% down payment helps you avoid private mortgage insurance (PMI) and starts you off with a higher ownership stake. If possible, put down more than 20% to maximize immediate equity.
3. Pay More Than the Minimum Mortgage Payment
Making extra payments directly to the principal balance of your mortgage helps you build equity faster and reduces interest costs. Options include:
- Adding an extra payment per year
- Rounding up monthly payments
- Applying work bonuses or tax refunds toward the loan
4. Refinance to a Lower Interest Rate
Refinancing to a lower interest rate reduces the amount paid in interest, allowing more of your monthly payment to go toward the principal. If you refinance to a shorter loan term, you can pay off your mortgage even faster while increasing equity.
5. Invest in Home Improvements
Renovations and upgrades that increase your home’s value will also raise your equity. The best home improvements for equity building include:
- Kitchen remodels
- Bathroom upgrades
- Energy-efficient windows or solar panels
- Adding a bedroom or extra living space
6. Keep Up with Regular Maintenance
Deferred maintenance can decrease property value, reducing equity. Routine upkeep—such as roof repairs, HVAC servicing, and exterior painting—keeps your home in top condition and prevents costly damage that could lower resale value.
7. Pay Closing Costs in Cash
If you’re buying a home, paying closing costs out-of-pocket rather than rolling them into your loan helps reduce your loan balance from the start, giving you immediate equity.
8. Buy in an Appreciating Neighborhood
If you’re in the market for a new home, research areas with increasing property values. A strong real estate market can boost your home’s equity simply through market appreciation. Work with a real estate agent to identify emerging neighborhoods.
9. Consider Buying a Fixer-Upper
Purchasing a fixer-upper at a lower price and making strategic renovations can quickly increase home value and equity. However, budget wisely to avoid over-improving beyond the neighborhood’s price range.
10. Apply Windfalls to Your Mortgage
Unexpected financial windfalls—such as work bonuses, tax refunds, or inheritance money—can be applied to your mortgage principal to reduce debt faster and grow your equity.
11. Use Classic, Neutral Materials for Renovations
When updating your home, stick with timeless materials and avoid overly trendy designs. Neutral tones and widely appealing upgrades improve resale value, leading to higher appraisals and equity gains.
12. Buy Less House Than You Can Afford
Choosing a home below your maximum budget allows for more flexibility in making larger payments, leading to faster equity growth. Additionally, a lower mortgage frees up funds for home improvements or emergency savings.
13. Avoid Tapping Into Your Home Equity
While home equity loans, HELOCs, and cash-out refinancing offer borrowing flexibility, they also reduce your available equity. If possible, use savings or alternative financing instead of pulling equity from your home.
14. Make Biweekly Mortgage Payments
Instead of monthly payments, switch to a biweekly mortgage payment schedule. This results in one extra full mortgage payment per year, which reduces interest costs and pays down the principal faster.
15. Be Patient and Let the Market Work for You
Home values generally appreciate over time. By simply holding onto your property, you can build equity passively. While market downturns may occur, long-term trends typically favor growth, helping homeowners accumulate equity without extra effort.
Final Thoughts
Building home equity quickly requires strategic financial planning, disciplined mortgage payments, and smart home investments. By following these 15 methods, you can increase your home’s value, reduce mortgage debt faster, and gain financial stability. Whether you’re planning to sell your home for a profit or use equity for future financial goals, these strategies will help you maximize your investment.
