According to the new information from CoreLogic, a 10.6 percent increase in equity was seen year-over-year among homeowners with mortgages during the second quarter.
This represents a gain of $766 billion. Around 63 percent of all homeowners have mortgage loans. This sector has gained an average of $12,987 in equity from the second quarter of 2016 to the second quarter of 2017.
On another positive note, 21.9 percent decrease was seen in the total number of mortgaged homes with negative equity. From a 3.6 million residential properties in the second quarter of 2016, it is now down to 2.8 percent in this year’s second quarter. Just in 2017, the total number plummeted by 10 percent from the first quarter to the second quarter.
The greatest gains were in the Western states, with Washington homeowners gaining an average of approximately $40,000 in home equity and California homeowners gaining an average of approximately $30,000.
CoreLogic Chief economist Frank Nothaft mentioned, “Over the last 12 months, approximately 750,000 borrowers achieved positive equity. This means that mortgage risk continues to decline and, given the continued strength in home prices, CoreLogic expects home equity to rise steadily over the next year.”
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What is Home Equity and How Do you Build it?
Home equity is basically the difference between your home’s value and the balance you still have on your mortgage loan.
For example, you have just purchased a home using a loan with a sales price of $200,000 and paid a down payment of $40,000 which is 20 percent of the sales price, you now have home equity of 20 percent.
If you have been making payments to your mortgage loan and your balance has now reduced to $140,000, you have now built an equity of 30 percent.
The more you pay towards your mortgage, the higher your home equity becomes.
How do You increase home equity fast?
You can apply these best practices to help build your equity faster:
Make a Larger Down Payment
These are many numerous home financing programs offering low down payment options. Conventional loans and federal home loans may offer you of mortgage loans with down payment as low as 3 percent to 3.5 percent if you have excellent credit.
If you want to keep more cash in your bank, this can be very helpful. But if you are after building your equity, a low down payment will slow you down.
But if you want to build equity faster, consider putting a larger down payment. In most cases, a 20 percent down payment is recommended. This does not give you a bigger equity to start with, it also helps reduce the interest that will apply on your loan.
Choose a Mortgage Loan with a Shorter Loan Term
When buying or refinancing a house, you are usually given an option of taking a 30-year or a 15-year term. You may automatically pick the former than the latter, thinking that a 15-year term may be too expensive for your budget.
But if run the numbers (or you may ask your lender to show you), you can compare a 15-year mortgage from with a 30-year mortgage and discover that a shorter term is still within your means.
You may pay a bigger amount per month on a 15-year loan, but you will also be able to pay off the loan much sooner than you would on a 30-year loan. If you are able to pay the loan half the time you would in a 30-year mortgage, you are sure to build equity faster.
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Make Extra Payments, As Often as Your Money Allows
Another effective way to increase home equity quicker is to make extra payments towards your principal balance.
If you make just one extra payment a year towards your mortgage, that will cut the time to pay the loan of by five to seven years.
An extra payment can be too big of a money to shell out. It can stretch your budget. However, if you decide to use bonuses and tax refunds towards your mortgage rather than spending it for something else, that can surely make a difference.
Building your home equity fast is doable. As long as you strategize carefully and study your options well, you will be able to achieve it.