Any honest mortgage company in Naples, Lely Resort, and Pelican Bay will tell you that a house in Florida is usually a liability before it can become an asset. A residential piece of real estate can help increase your net worth down the road, but owning it can cost you more money than renting it before you get there.
Taking out a mortgage to afford a property’s full price comes with interest and closing costs, although the latter can be added to the principal balance to minimize your out-of-pocket expenses at settlement. Either way, obtaining a long-term six-digit debt can affect your budget in the foreseeable future. Do not forget about the recurring costs of maintenance and homeowner’s insurance.
Home equity is perhaps the best consolation of owning a significant liability like a house. It is a form of wealth calculated by deducting what you owe on your house property from what it is worth.
The faster you build equity in your house, the more of it you own. Usually, you need to make extra payments to accelerate the growth of home equity, but it is not the only way. Here, there are several strategies you should use.
Watch Out for Major Economic Development
Generally, home equity grows in two ways: principal mortgage reduction and land appreciation. The former happens as you repay your loan every month, but the latter is beyond your control.
While you can’t personally influence the market forces that can drive up the values of properties in a neighborhood, you have the freedom to choose where to buy a house. To speed up the growth of home equity, purchase a property in a real estate market that is likely to heat up in the future.
You can’t achieve “absolute home equity” without owning your house free and clear. Common sense dictates that a smaller debt is easier to repay, so it is wise to minimize the size of your loan.
You can choose a cheaper house and put down more cash to achieve this goal. You can pursue at least one of the two, but you can’t avoid both if you are to reduce the total amount of money you need to borrow.
Choose a 15-year Mortgage
A short loan term can increase your monthly mortgage payments, but it allows you to build home equity more quickly. Apart from accelerating the reduction of the principal, a short term can also help you negotiate for a lower interest rate.
Take Home Maintenance Seriously
If you plan to sell your house, one way to increase its perceived value is by keeping it structurally sound and aesthetically pleasing. Even if you do not see yourself putting your property on the market soon, embracing preventive property maintenance is necessary. Accelerated home equity growth is just a bonus.
Refinancing can stunt home equity buildup since it resets the clock of your mortgage, and it would take a while before the principal balance is decreased at a rapid rate. Choosing a cash-out option in a refi is even worse because it drains the home equity you already have, sending you back to the start.
Building home equity should not be your primary goal when buying a house because this kind of passive wealth does not grow faster than other investment assets. Nevertheless, it a consideration you should not overlook as you take your first step toward homeownership.