How to Build Equity in a Home: 12 Specific Tips

How to build equity in a home

Now let’s look at 12 real-world steps you can apply to build equity in your home.

Some of these tips are simple actions you can take right away. Others require planning, determination, and an investment of time or money, but the fruits of your efforts can have long-lasting benefits now and into your retirement years.

With each of these tips below, we’ll provide links to online resources and calculators that can help you make plans to grow your home equity.

1. Pay $200 extra toward your principal each month

By adding just $200 to your monthly mortgage payment, specifically toward your principal, you can significantly reduce the life of your loan. On a $300,000 mortgage at 5% interest, paying an extra $200 each month could shave off six and a half years of payments and save over $69,000 in interest. This simple change accelerates your equity growth without major lifestyle adjustments.

The Federal National Mortgage Association, known as Fannie Mae, provides a handy Extra Mortgage Payment Calculator you can use to see how much equity you can grow using other extra payment amounts.

2. Refinance to a 15-year mortgage

If you’re financially able to handle higher monthly payments, refinancing to a 15-year mortgage is one of the most effective ways to build equity faster. With a shorter loan term, more of your monthly payment goes toward the principal, not interest. On a $300,000 mortgage at 5%, switching from a 30-year to a 15-year loan could save you over $120,000 in interest, helping you gain full ownership much sooner.

The Federal Home Loan Mortgage Corporation, known as Freddie Mac, provides a 15-year vs. 30-year Term Mortgage Calculator to help you see the difference this can make to your loan amount and interest rate.

3. Make one extra mortgage payment annually

Another way to build equity faster without changing your monthly budget is to make one extra mortgage payment each year. If you have a $300,000 loan at 5% interest, one extra payment annually (about $1,610) could shorten your mortgage by about five years and save you nearly $53,000 in interest. Consider using your tax refund or bonus to make this extra payment and watch your equity grow.

To see how one extra mortgage payment might impact your equity, try Freddie Mac’s Extra Payments Calculator. This simple online tool allows you to change the amount and frequency of extra payments as well as the loan balance and interest rate.

4. Switch to biweekly mortgage payments

Switching to biweekly mortgage payments means you’ll make 26 half-payments a year, which adds up to 13 full payments instead of 12. This results in one extra payment annually without much thought or effort. Here again, for a $300,000 loan, that extra payment can shave five years off a 30-year mortgage term and help you build equity faster with less strain on your budget. You’ll also save tens of thousands of dollars on interest.

The USAA Educational Foundation provides a Bi-Weekly Mortgage Calculator that will show you the time and money you can save by paying your mortgage every two weeks rather than monthly.

5. Remodel your kitchen for a $20,000 equity boost

Upgrading your kitchen can add immediate value to your home. According to Remodeling Magazine’s 2024 Cost vs. Value Report, your return on investment (ROI) can range from 38.3% to 96.1%. This means that for every $100 you spend on your kitchen remodel, you can increase the resale value of your home by about $38 to $96 dollars.

To put this into perspective, if you spend $25,000 on a minor kitchen remodel (96.1% ROI), your $300,000 home would potentially now be worth $324,025. In addition, you can enjoy an upgraded kitchen even if you are not selling your home right now.

If you are selling, a recent HomeLight report found that nearly 70% of top agents surveyed said homebuyers want updated kitchens. These upgrades will add to your property’s appeal for a faster sale and higher proceeds. Focus on upgrades that buyers love, like modern appliances, quality countertops, and updated cabinets.

6. Add square footage to increase your home’s value

Adding square footage, whether it’s an extra bedroom or extending your living space, can dramatically increase your home’s value. For example, a 400-square-foot addition at $200 per square foot could increase your home’s value by $80,000 or more. After factoring in costs, you’d still see a substantial equity boost from this investment, which can be especially beneficial in growing neighborhoods.

While the initial investment may cost $125–$250 per square foot, a home addition grows in value over time as it increases the overall appreciation of your property. And like a kitchen remodel, having additional square footage is an Investment in your day-to-day quality of life.

7. Rent out space for extra income toward your mortgage

If you have unused space like a basement or a guest room, renting it out can generate extra income that you can put directly toward your mortgage. Renting a room for $800 a month could mean $9,600 a year in extra payments, helping you pay down your loan faster and build equity without relying solely on your regular income.

Services like Rentalios, Zillow Rentals, and Calculator Academy provide online tools to help you estimate how much you can charge to rent out a room in your home.

8. Stay in your home for at least five years

Equity grows naturally as home values increase, but it takes time. By staying in your home for at least five years (the 5-Year Rule), you can ride out market fluctuations and build equity as property values rise. This is especially important in the early years of a mortgage when more of your payment goes toward interest rather than principal.

There are also tax benefits when you stay in your home longer, especially when it comes to avoiding the capital gains tax. To take advantage of money-saving tax exclusions, you should live in your primary residence home for at least two years.

9. Make energy-efficient upgrades

Installing energy-efficient features like solar panels, new windows, or a smart thermostat can boost your home’s value and lower your energy bills. For instance, spending $10,000 on energy-efficient windows could add immediate value to your home, increasing your equity by $5,000-$10,000, depending on the ROI of the upgrades. Plus, you’ll save on utility costs in the long run.

According to data collected by Home Innovation Research Labs, 68% of buyers are concerned about the environmental impact of their home, and 52% said they are willing to pay more for a sustainable home.

Programs like the Inflation Reduction Act can help you pay for upgrades like energy-efficient windows, doors, solar panels, or even a new electric oven. These incentives can save you money, reduce environmental impact, and increase the equity of your home.

10. Pay off other debt to free up cash for your mortgage

High-interest debt, like credit cards or personal loans, can eat away at your budget. Paying off a $10,000 credit card balance with 18% interest frees up hundreds of dollars each month that you can then apply to your mortgage. This extra money accelerates your equity growth by reducing your loan principal faster.

Credit report company Experian provides a useful Credit Card Payoff Calculator to figure out how long it might take to pay off your existing debt and how much interest costs you might be able to channel to other monthly expenses.

11. Make a 20% down payment to start with more equity

Putting down 20% on a home purchase means you’ll have significant equity from day one. For a $300,000 home, a 20% down payment gives you $60,000 in equity right away. This also helps you avoid private mortgage insurance (PMI), saving you even more money over time, which you can redirect toward additional mortgage payments.

Many lenders allow you to use gift funds to increase your down payment, provided you document the source and confirm it’s a gift, not a loan. Try HomLight’s Down Payment Calculator to see how much you should put down on a house and learn more about the loan options that work best for you.

12. Avoid rolling costs like closing fees into your loan

When buying a home, it might be tempting to roll your closing costs into your mortgage to reduce upfront expenses. However, this adds to your loan balance and reduces your initial equity. For example, rolling $5,000 in closing costs into your mortgage means you’re starting with less equity and paying interest on that extra amount over time.

HomeLight’s Closing Costs Calculator helps you estimate how much cash you might need at the closing table for lender and third-party fees.

Let your equity grow until you need it

Borrowing against your home equity through loans or lines of credit can be a strategic move, but it can also chip away at financial leverage you might need in the future. Avoid tapping into your equity to purchase items that depreciate quickly, like cars, RVs, or boats that leave you with long-term debt but little or no lasting value.

Over time, untouched equity becomes a valuable financial asset that can be used for significant investments or future needs, like retirement or purchasing your next home. Check out HomeLight’s Buy Before You Sell program, which streamlines the entire buy-sell process. You can make a stronger, non-contingent offer on your new home and only move once.

If you plan to sell or buy in the future, HomeLight’s free Agent Match tool can connect you with the top-rated real estate agents in your market. If you’re buying and selling at the same time, see how HomeLight’s Buy Before You Sell Equity Unlock Calculator can change the playing field. Watch the short video below to learn more.

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