Blog Layout

Building Wealth Through Homeownership & Equity

Mar 17, 2021
Buying a home is obviously a large investment, and with it comes some big potential benefits. Aside from the more personal benefits such as the freedom to create your own space and the pride in knowing you have achieved a major life milestone, homeownership comes with financial benefits as well. 

So how can homeownership work for you and your future goals? Through equity you build in your home and the many different ways you can use that accrued wealth for future purchases, homeownership is one of the largest contributors to your personal wealth. 

What Is Equity?

Equity is the difference between what you owe on your home and its current value. Equity is one of the greatest benefits of homeownership as it can be used later for other large financial decisions. 


Ex. If you owe $250,000 on your home mortgage and your home is valued at $300,000 then you have $50,000 of equity in your home.


Equity can increase or decrease based on a host of different variables such as appreciation or depreciation of your home value. This means that as your house gains value and you continue to make payments, your equity will increase. It also means that if your home loses value or even falls below what you owe, your equity may stall or shrink considerably. 


Ex. You buy your home at the value of $100,000. You made a $5,000 downpayment and are left with a mortgage of $95,000. At the start, you have $5,000 in equity. Fast forward 2 years and some things may have changed.


  1. Your home’s value has increased to $115,000 and you’ve reduced what you owe to $85,000. Your equity has now increased to $30,000.
  2. You have paid down your mortgage to that same $85,000 but your home’s value has dipped to $95,000. Your equity is now only $10,000. 


This is the simplest way to understand equity in your home and how it could grow or shrink during the time you own your home. What’s important to remember is that buying a house is an investment. Just as stocks go up and down, so can the investment in your home but don’t worry it’s far less volatile than the stock market.


Building Equity

  • Down Payment: The more you can put down on your home, the more equity you will have from the start. So instead of putting down $5,000 on your home that’s worth $100,000, you can aim to put down somewhere between 10%-20% or $10,000 - $20,000. This may not be an option for everyone, but starting with as much equity as possible can set you up for success down the road. 


  • Monthly Payments: Homeownership acts as a sort of forced savings and requires that you have a certain amount budgeted for your monthly payments. At the start of your loan, the majority of your monthly payments will go towards things like interest, taxes, and any other fees. As you continue to make those monthly payments, more of it will go towards reducing your principal balance and in turn, build your equity. No, this doesn’t mean your monthly payment changes, it just means the allocation of the same funds go to different buckets when you pay your mortgage.


  • You can also use monthly mortgage payments as a way to build wealth faster. Perhaps you could put an extra $100 towards your payments each month or make one extra payment every year. This will help you to shrink the life of your loan faster and increase the amount that goes towards paying down your principal balance and building your home equity.


Renovations: Help your home’s value without relying on the market with smart renovations. Get familiar with what home buyers are looking for in a home and make moves to add those features to your own. For example, upgrading appliances, redoing your roof, finishing your basement, or upgrading the exterior of your home will increase the value of your home, and in turn increase your equity.


How Can You Use Equity in Your Home?


The equity you build in your home doesn’t have to be just a concept you halfway understand, it can work as a tool for you in your future endeavors. Tapping into the equity in your home can help you with future financial moves such as home renovations, debt consolidation or repayment, and buying your next home. There are several ways to tap into and use your home equity, but the most popular one allows you to re-evaluate your current home financing details and borrow from your built equity.


Cash-Out Refinance: Now that you understand what equity is and how to build it using your home, let’s talk about how to access that money. The most common way, other than selling your home, is a cash-out refinance. When you obtain a cash-out refinance you are BOTH refinancing your interest rate and borrowing money from the equity in your home. It’s important to remember that whatever equity you take out of your home will have to be added to your mortgage so the balance owed on your mortgage after the cash-out refinance will equal your old principal balance plus the amount of money you take out of the house in addition to any closing costs you may have rolled into the loan.


Homeownership comes with many benefits, but understanding the financial benefits and how they can work for you is crucial to making the most out of being a homeowner. If you have more questions about home equity and how to use it, contact one of our loan officers today! We are always here to help you understand all your available home financing options and which solution is best for you.

Share This Article

Q1 Recap

By Mikaylah Collins • 12 Apr, 2023
We've begun to see signs that the Spring Market is here and could be robust! Here is what we know: According to NAR, home sales were up 14% in February over the previous month which marked the biggest monthly increase since July 2020. While March results are not yet published, the mortgage industry saw an increase in purchase applications for the 3rd straight month; a great sign for the housing market. Driving much of this activity is the stabilization of rates in January & February and lower interest rates this past month. We’re starting to see signs of a slowing economy and the markets are now pricing this in. This week we saw the 10-yr Treasury drop under 3.4%, a level it has not reached for quite some time and the lowest it’s been since September 9, 2022. This is great news for consumers as decreasing rates mean more home affordability. Over the past year, most markets have seen home prices stabilize if not even decline, albeit by a very small amount. This stabilization was still a relief for homebuyers as it helped to offset higher interest rates. As rates continue to decrease, we would expect home prices to again increase due to demand increases. In addition to increased demand, there is still a shortage of homes for sale nationwide and that will continue to worsen as more and more homebuyers enter the market.  So what does it all mean? Now is a GREAT time to buy a home! Rates and home prices are stable, there is not as much competition as there will be when rates do decrease, and buying a home is still extremely affordable for most. Once rates fall, we will likely see home prices rise and the competition for the shortage of homes will increase alongside it making the window of a buyer-dominated market very small.

Q1 2023 Market Outlook

By Sarah Rubin • 10 Feb, 2023
We are well into Q1 and feel confident saying that the market appears to be stabilizing. Before we start looking forward, let’s quickly look back at the end of 2022.

Finding The Right Listing Agent For You

By Sarah Rubin • 15 Dec, 2022
Buying a home is a huge investment and one we talk about often - BUT the flipside is that you have an opportunity to cash in on that investment when you’re ready to sell your home! While you do have the chance to cash-in, a lot more work goes into selling a home than you might think! If you are considering selling your home, working with a listing agent will help you market your home, negotiate with potential buyers, work through paperwork, and ultimately close on your home! So what is a listing agent? In its most basic terms, a listing agent is a real estate professional who represents the seller in a real estate transaction. The listing agent lists the home for sale and works on behalf of the seller to sell the home at the best price and terms for their client. Listing your home is a BIG deal and it is not a place to try and DIY. But why can’t you just grab a sign at Home Depot and try and sell yourself? Well, there are lots of reasons some of which include: Professional consultation: A listing agent will walk you through each step and tell you what to expect along the way! They should understand the specific community you’re in and the current market environment and will help you determine a competitive but realistic asking price for your home. Marketing and selling your home: Your listing agent will list your home on the multiple listing service (MLS) in order to better market your home to potential buyers. They also can make staging recommendations and hire a photographer to best show off your home and its features. They’ll schedule house showings, and can be present to answer any questions. Communication and negotiation: Communication is key to both buying and selling a home in order to minimize stress and misunderstandings. Listing agents take care of this important task, by staying in touch with interested buyers and their agents, fielding questions, handling paperwork, and negotiating the final sale price and terms. Recommendations: Seasoned listing agents might come with a list of professionals who they have worked with in the past that they enjoy working with in order to make the selling process smoother for you! Some of these professionals include: real estate attorneys or title companies, inspectors, stagers, those who specialize in home improvement AND of course trusted Loan Officers. How do I find the right listing agent for my situation? In order to find the right listing agent for you, make sure your agent is licensed and has experience, references, and a professional website where you can learn more about them and their qualifications. Most real estate agents work with both buyers and sellers, but some might specialize in one or the other. Once you find a few agents through referrals or online research, meet with them in person to ensure they meet your needs and work well with your personality. It is also important to ask questions during your meeting with them and it’s imperative that you determine what you’re looking for in an agent so you make sure you are happy with the product being delivered. Selling a home can be stressful, especially for first-time sellers. A listing agent can help by taking on some of the burden and providing the information and resources needed to help sellers make informed decisions. We work with agents on both sides of the transaction – if you have any questions or would like a recommendation for an agent in your area, please reach out to us!
Share by: