Put more money down!—Like that’s a big duh? However, placing enough money down to assure you won’t be spending extra money on Mutual Mortgage Insurance or tax impound accounts can over the course of the loan save you big bucks! FHA, at one time, allowed removal of Mutual Mortgage Insurance once a certain equity position was obtained, but now require it for the life of the loan. This adds up-FHA mortgage insurance is based on 1.75% of the loan amount. Example: On a 300k loan 1.75% is $5250, so the loan amount is increased by that amount or $305250. The $5250 is sent to FHA for the first year’s insurance. You then will be paying a monthly fee of over $300.00. On the plus side FHA has less stringent borrower requirements so might be a great vehicle for getting into a home but not for a long-term loan. Talk to your mortgage professional for all the details.
Choose your loan very carefully and explore different amortization schedules like a 15 year loan vs. a 30 year loan. Not only will your interest rate be a lot less on a 15 year loan your equity build up is phenomenal. Albeit at a steep monthly payment. A $400,000 loan at the end of 5 years with a 15 year loan amortization will garner almost $75,000 additional equity. However, you may not qualify for a 15 year loan nor wish to be locked into the higher payments.
Make an extra payment on the principle once a month or every quarter—this small step alone can save you big bucks over the course of your 30 year loan amortization. Opt for the 30 year amortization but make additional “principle” payments on a quarterly or even monthly basis. If you’re tight one month make the 30 year payment only. Your loan professional can show you how an extra payment can be a powerful equity builder.
Make the RIGHT improvements to your home: Hands down the best return on your investment for marketing a home will be a Kitchen and/or bathroom combination. However, long term return on cost vs. re-cooping during re-sale are as follows: Entry door: 113.0%, Minor kitchen remodel: 104.0% , Deck (wood) addition: 109.0%, Window replacements (vinyl/wood) 100 to 102% respectively, and major bathroom and kitchen remodels are in the 90% range.
Keep it in pristine, maintained condition—overall keeping your home in excellent condition is the #1 way to build in equity when you go to sell. Having a state of the art kitchen doesn’t means squat when the roof is leaking, siding is rotted or landscaping is non-existent. I once had a client who not only maintained his home in excellent condition but had every receipt, in chronological order, in two massive binders. Now you may not be that organized but having the major receipts for work done, all done with permits and licensed contractors, will garner a big price at the time of sale. Everyone wants to buy the pristine car from the little old lady. And here in California it is a disclosure item.
This is written in California but home improvements may differ throughout the nation. Basement conversions or improvements are rare in California as our “Sun Rooms”, storm shutters, etc. What is the big equity building improvement in YOUR area?