Buying a home is a big commitment. It takes time, money, and effort to find the home you love and to improve it and get equity in that home. Equity is an essential factor in reselling your home either for a profit or for a large enough sum to make selling worth it.
Taking the time to know how much equity you have in your home, what equity is, and how to get better equity in your home is a must and can help you get the outcome you are looking for. We are currently living in a booming real estate market, making now a great time to both buy and sell and get into the home of your dreams.
What is Home Equity?
When you purchase a home, buyers often need to take out a mortgage or a loan against the home’s value to finance the house’s cost. Mortgages are an essential part of owning a home. You pay each month to take down the amount that you owe and to build equity. Equity is the difference between the amount that you still owe on your home and what it is currently worth in the market.
Why is Home Equity Important?
Home equity is essential for a few different reasons. First off, the more equity you have in your home, the more money you are going to get when it sells. A great way to look at it is to look at an example.
If you have a home that you bought for $130,000 and you have paid down $40,000 on your loan, you would owe a total of $90,000 on that home. Now say that the value of the house is now $150,000 in the current market. This would mean that you would get $60,000 back minus the expenses from selling your home if you sold it. You could either take this amount as cash or put it toward another home after the initial loan is paid off.
Equity makes a home worth more and makes it more beneficial to sell if you plan on selling your home and moving to another.
How Much Home Equity Before Selling do You Need?
When it comes to selling your home, it does depend on why you are moving when it comes to the amount of equity you should have. There is no set number that you have to have to sell your home. The bank will finance you regardless of how much equity you have if you meet all their requirements.
Financial and real estate experts state that if you are thinking of just moving to another area but buying a home that is similar in size and price, you should have 10% equity in your home. This means that if you have a home worth $200,000, you should have at least $20,000 in equity to relocate to a similar home.
Experts state that you should have 15% equity in a home if you are looking to get a larger home and spend more money on your next home. Looking at the same value, if you have a home worth $200,000, you want to have 15% or $30,000 in value at least.
These are just suggested ratios, and if you have more or less, you are still not out of luck. If you have a home, and you have less than 10%, you can still sell. However, the main issue with this is that you may end up having to pay even if you sell your home for slightly more than it is worth. The main aim of home equity is to get as much value in your home as possible so that you will get as much money as possible when you do sell. The more equity you get in your home, the better. Homes with substantial home equity will leave the homeowner with more money to put on a new home.
How to Build More Equity
If you want to sell your home or are thinking of selling it later, you want to think of ways to help build equity and make your home worth more. One way to build equity is to pay off your mortgage. This is the fastest way to build equity as it reduces the overall amount that you owe. Suppose you cannot pay off your loan faster. In that case, home improvements that help increase the home’s overall value can also increase equity. Improvements like remodels, updating bathrooms, appliances, and adding elements to the house will help increase the home’s value and improve your overall home equity.
If you have a home that you are looking to sell, home equity is one of your home’s most important elements and in the selling process. Taking the time to learn the amount of home equity that you have, learn how to increase it, and learn why equity is so important can truly make a difference in the overall selling process.
Bello Real Estate is here to help you. Contact us today to learn more about home equity and what your South Florida home is worth!