The value built up in a property makes the home the most important asset for many homeowners. In most cases, the gain accumulates over time, but do you know how you add more value to the property?
What is the concept of Property Gain?
It is the value accumulated in the house. In other words, it is the current market value of the property minus any accompanying liens.
The amount of equity in a home fluctuates over time as more mortgage payments are made and market behavior impacts the current value of the property. The gain is calculated on the surplus you have left over after satisfying all the expenses associated with the property, expenses such as mortgage, expenses when selling your property, CRIM debts, liens affecting the property such as IRS, Hacienda debts, among others. What you are left with is the accumulated gain.
The accumulated value of the property is more than just the payment of a mortgage loan that is being paid. The property is an asset against which the owners can borrow against to meet important financial needs, such as paying high-cost debts or major expenses.
How to build equity or gain in the home?
The equity in your home can increase in some circumstances:
-When you make your mortgage payments: The easiest way to increase your home equity is to reduce your outstanding mortgage balance. Every month, when you make your regular mortgage payment, you are paying down your mortgage balance and increasing the equity in your home. You can also make additional mortgage principal payments to build your equity/gain even faster.
-When you make home improvements that increase the value of your property: Even if your mortgage principal balance remains the same, increasing the value of your home also increases the equity in your property. Just keep in mind that some home renovations add more value than others.
-When property values increase: Often but not always, property values increase over time. This is called appreciation and can be another way to generate equity/profit. Because the increase in value of your property depends on several factors, such as location and the economy, there is no way to know how long you will have to stay in your home to see an increase in value. However, looking at historical home price data in your area can give you an idea of whether values have been trending up or down.
-When you make a large down payment: Making a larger down payment when you buy the house instantly increases your equity, for example, by putting down 20% instead of 10%. Doing so could also allow you to tap into your equity more quickly.
How to calculate home equity:
To calculate your home’s equity or accumulated gain, follow these steps:
Obtain the estimated current market value of your home. Consult with your Realtor about the latest sales in your area. This will help you define the approximate current value of your property. For more detailed information I recommend that you have your property appraised.
Once you know the value of your home, subtract the amount you still owe on your home and any other debt secured by your home. The result is the net value of your home.
Why is Equity/Earnings so important?
- It increases your wealth
- It is a source of retirement savings
- It increases your buying power
- You can pay off debts with the equity you have accumulated
- You make a profit when you sell your property
Homeownership brings great benefits such as long-term profit accumulation, and if you are planning to move, the profit or equity you have earned over time can have a big impact on you and your family. To find out how much equity you have in your current home and how you can use it to boost your next purchase, contact a Realtor you trust.