Your house is your home and it can also be an asset if you buy right and maintain it.
48 states saw home equity levels increase from the third quarter to the fourth quarter in 2021, while seriously underwater mortgages decreased in 46 states.
ATTOM released its fourth quarter U.S. Home Equity & Underwater Report, showing that nearly 42% of mortgage residential properties in the United States were considered equity-rich
Equity is what you need to make your home an asset. However, if your can’t afford it and can’t grow any equity, it becomes more of a liability.
When I bought my first home, I didn’t even know what equity was, and no one ever said “Hey, equity is what you need to make your home an asset”, so it certainly was not on my mind when I made my purchase. We had rented for 7 years and as a young mom, I was excited to buy a place that would be mine. I wish I had known about equity and how to make my home an asset.
Asset vs Liability
What I didn’t know was, if you buy right, a home can become an asset, a financial asset. Most people buy their homes and it become a liability for them. Technically the bank owns the home with the security of the mortgage place against it. Often, people owe too much and are constantly making payments that mostly go to interest (the bank) in the beginning. The mortgage is the debt that is attached to the home, and that debt is equal to, or sometimes more than what the market value of the house is. When this happens, the house becomes a liability, something that you are paying for without any growth in your equity.
Create An Asset
How do you create an asset? You pay down the mortgage and you keep your equity securely invested in the property. That means you should not take out money to go on vacation, or to buy a car or to buy other items you just don’t need. These can become liabilities because they just cost you money and do not make you money in the long term.
As you pay down your mortgage, your house also appreciates, meaning, it increases in value with the market. The values of other property in your area drive what your property is worth. The more you pay down, the better, and then your house is also increasing in value based on what the other properties in the area are selling for. So the amount between what you owe and the market value, or what other properties are selling for, that are equivalent to your home is your equity. So when you have more equity than you have debt, you really have yourself an asset.
Buy Right and Pay Extra
So I challenge you to buy a home. Don’t pay top dollar, have a mortgage that you can actually put a little bit of savings away and, or put that savings towards your principle and interest. So make a little bit more of your payment each month versus what your mortgage is, and you can actually pay it down a lot quicker. It does make a significant difference, just putting 50, 100, $200 extra towards your mortgage, because that will go towards your principle and interest every month. So I’m glad you’re here. I hope that this has been helpful in teaching you a little bit about how to make your home an asset.
Have Equity When You Need To Sell
When the time comes for you to sell your property, the more equity you have the better. That equity can be used to purchase another home or could be invested for later use such as retirement or to grow wealth.
In some cases, you may not have equity in your property and you will have a hard time selling with a real estate agent. I experienced this when I sold my home in 2007. I had refinanced following a divorce and taken out cash to pay off bills and spend. I had no idea of the difficulty this would cause for me. When it came time to sell, I didn’t even have enough equity to pay the real estate agent fees and I had to bring money to closing. Trust me, this was absolutely awful.
You don’t have to go through what I went through because Mastiff Home Buyers is here to help. Having no equity is no problem for us as we still have options to purchase your house fast and help you move on. Why not give us a call at 816-535-0076 to see if we can help you? You can also fill out the form below to get started.