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From First Home To Forever Home: Why Building Equity Matters

October 20, 2017

From First Home To Forever Home: Why Building Equity Matters

Do you plan to sell your current home someday in order to upgrade?

Whether you’re a first-time home buyer or you have some experience, building equity on your current home is what can move you into your forever dream home. Equity is the value of the property that you own, so think of it as your home’s worth after accounting for your mortgage principal.

As an example, the average price for a home in Riverside County is $388,500. If you take out a $200,000 mortgage, your equity in the property would be $188,500.

You can increase your home’s equity by adding value through improvements. When it is time to sell, these added improvements will support a higher asking price. It’s important to remember that what you spend now should be recoupable in the future – don’t spend $50,000 on a bat cave and expect to find a seller who is willing to pay extra for it.

Improvements to your house most likely to retain and increase value are:

  • Kitchens
  • Bathrooms
  • Outdoor Space
  • Energy Efficiency

Consider these renovations if you’re looking to actively build equity in your home, but remember that regular maintenance and upkeep will keep your home in good shape when it comes time to sell. Southern California real estate, in particular, is susceptible to earthquakes, flooding, landslides, and fire, so never let any property damage go unfixed, especially if you have real estate in Orange County or Los Angeles County.

You can also increase the equity in your home by paying off more of your mortgage when possible. Each time your balance drops, your stake in your home rises. Check with lenders to verify whether they have prepayment penalties and that they allow extra payments. Every time you get a large sum of money – such as a bonus or tax return – consider putting that directly to paying off your principal.

Finally, try “forced savings” – rather than putting money in a bank account you are putting it into paying off your mortgage. Since your home’s equity is what you will hopefully get back after a sale, you are still saving the money while increasing what that number will be. Use a mortgage calculator to give yourself an idea of how much money you may potentially save by reducing your principal at a faster rate.



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