Posted Friday, June 2nd, 2023 | 839 views
Owning a home isn’t just about having a place to call your own. It’s also an effective wealth-building tool that allows you to build equity. But what exactly is equity, and how does buying a new house contribute to your financial growth?
At its core, the concept of equity refers to the value of an investment that exceeds the value of the initial loan balance. When it comes to homeownership, equity is the portion of the property that you truly “own” — that is, the market value of your home minus what you still owe on your mortgage.
As an example, if you purchased a home for 1.2 million dollars, and the market value of the home increased to 1.3 million, that extra $100,000 minus what you still owe on the mortgage, would be considered your equity.
There are home equity calculators that help home owners calculate out how much they can qualify to borrow based on their existing equity. You can fiddle with the numbers get an idea of the amount of a loan you can get based on a few years of building equity in your home.
Over time, most properties tend to appreciate or increase in value, even if the market fluctuates. As your property’s market value grows, so does your equity grow too. This is appreciation and it can be particularly pronounced when buying new home builds.
New builds often come with modern design features and energy-efficient technologies that are highly sought after in today’s market which further boosts the home’s value over time.
Each mortgage payment you make also helps to build equity. A part of every mortgage payment you make goes towards the principal balance (original balance) of your loan.
These payments reduce the amount you owe on the loan and therefore increases your equity.
Making improvements to a home can also increase its value and further boost your equity. This is another area where new build homes often have an edge over older homes.
New builds are always designed with the latest trends and technologies which enable you to enjoy a higher value home from the outset, and giving you more space to further improve and personalize it in a way that increases its market value.
Once you’ve built up enough home equity, it can become a valuable financial resource that you can leverage.
Home equity can serve as collateral for home equity loans or lines of credit, which can be used to fund big-ticket expenses like home renovations, education, other investments or even a down payment on another property.
Having a substantial amount of home equity built up can make it easier to qualify for loans and/or get better loan terms too.
When it’s time to sell your home, any equity you’ve built up translates into a profit that you can make from the sale.
With that profit, you can then use it to invest in a larger home, fund your retirement, diversify your other investments or simply spend it as you see fit.
As we’ve explained, buying a new house is not just a milestone, but it’s a highly significant step towards financial growth.
Equity gives you the opportunity to build and increase your wealth over time. Whether through appreciation, monthly mortgage payments, or home improvements – growing your home equity is most likely to provide you with financial stability and open many doors to new opportunities for you.
Remember that every mortgage payment is not just a monthly expense but an investment that steadily builds your financial with every payment you make.
Register your new home build today! Your dream home is only a few clicks away!