Equity is a very important financial tool for homeowners and one of the biggest financial benefits of owning your home. If you have owned a home in the Seattle area over the past few years, there is a good chance that your home has accrued quite a bit of equity since you made the purchase. So, what are the best ways to use that equity to your advantage?
When is the Right Time to Use Equity?
The equity on your home fluctuates with home values, which are constantly changing. This can make it difficult to know just how much equity you have accrued on your home and when you should leverage that equity. However, there are a few basic ways to understand where your equity is sitting or if it is in a good position to be leveraged.
For one, every time you make a mortgage payment you gain equity in your home. The early years of paying your mortgage go more toward interest rather than principle, but over time that situation flips, meaning you gain equity faster toward the end of your loan term. In other words, if you have been paying down your mortgage, especially if you have paid more than the monthly minimum, you will have gained quite a bit of equity.
Another riskier way is to wait for home values to rise. Since equity is based on your home’s appraised value against the balance of your mortgage, this can be a fast way to get usable equity, especially in a hot housing market where home prices are going up already. However, the risk comes from that same process and if the housing market takes a downturn, your equity would go down. Therefore, if you have paid a decent amount of your mortgage down and have a home appraised for more than you bought it for, it might be a good time to leverage that equity!
Build for the Future
So how do you leverage your accrued equity? Well, home equity can be used in a variety of ways. If you have built up enough, you can use that equity to make home improvements in your current home, or even buy a new, perhaps larger, home. Putting in home improvements, such as updated bathrooms, kitchens, or a basement, as well as smaller projects, are great ways to improve the value of your home for a future sale and receive a larger return on your investment. However, you can also use that equity to move into a new home if you are ready to move.
For example, if your home is worth $1,000,000 and you have accrued $315,000 in equity and you sell your home for its worth, you can then walk away with a large profit. While you might not get the entire $315,000, with your agent’s commission and mortgage closing costs, it would still leave you with a large pool to draw from to make a significant down payment on a new home. It is also important o keep in mind that using a real estate professional can lead to a larger return as well, even with commission costs. With a large down payment, you might even be able to get a lower mortgage even if you’re upsizing!
I Am Here to Help!
This can be a confusing, complicated aspect of home ownership. Luckily, I can do a market analysis to determine equity and connect you with team members that can help you refinance. If you are curious about your home’s accrued equity or how to use it, feel free to contact me and we can get started!