Buying a home is a very big deal and in the beginning you'll feel like you are emptying out your entire life savings to secure it, but the rewards are well worth it. The great thing about buying and owning a home is the fact that every year your home increases in value. The more you pay on your mortgage and bring down the amount you owe on your loan verses what your home is worth is what defines your equity.
Right after you make your first home purchase, you may feel like your pockets are completely drained, but when I tell you your house will pay you back one day, that's exactly what I mean. Your house will pay you back with its equity.
If you look around, most people who are rich and have wealth own some sort of real estate. It's not a get rich quick scheme, but it can help you build generational wealth. This is one of the reasons I go so hard to teach people about home buying in hopes of making them understand it's more to it than the house itself. There a lot of things the value of your house can help you obtain in a short amount of time.
Home Equity by definition is the difference between the value of the property and the amount still owed to the lender.
Here's an example: If you bought a home for $350,000 and have paid on your home for the last 5 years and how now only owe about $300,000, but your home is now worth $450,000. You now have over $150,000 worth of equity in your home you could pull out and make some serious financial changes in your life.
Here are some ways you can use your home equity.
Home Improvements and Renovations
Is your home in need of some upgrades? Have you been saying that if you had the extra money to do this or that to your home, you would? Well, if you have some equity in your home, you can pull it out and do just that.
You can use your home equity to fund upgrades, increasing your home's value and comfort. This would be the perfect time to upgrade your kitchen, remodel, or add an extra bedroom or bathroom. Hey, you can even work on that She Den or Man Cave, add a pool in the backyard or whatever upgrades you've had in mind.
Consolidate High Interest Debt
As we all know, debt can pile up and be higher than a giraffe's nose and have you in a chokehold. Home equity can be used to pay off high interest debts like credit cards, car loans, etc. This could potentially lower your overall monthly payments giving you more discretionary income to save for emergency funds, college, retirement, vacations and more.
Buying an Investment Property
Here's another fun way to use your home equity and that's by taking it and buying another property as a second home or an investment property. No, you don't have to necessarily be a real estate agent or seasoned investor to get started. You can simply take your home equity and use it to buy a second property. Use your equity to purchase rental property, diversifying your investments and potentially generate additional income.
Building an Emergency Fund
Emergencies happen and most of the time affect our finances the most, furthermore they happen most times when we're low on funds. Use your home equity to create a financial safety net by setting aside some of your equity for unforeseen expenses or emergencies.
Funding Education Expenses
Have kids heading to or in college? Want to keep them from piling up student loan debt? Well using your home equity is a great way to invest in your kid's future and pay for their college tuition. Now just make sure you let your kids know they have to make all As and no flunking out so they won't waste your equity.
Retirement Planning
Let's be real, nobody really likes working and we for sure don't want to work forever. You can also use your home equity to help plan your retirement savings. There are a couple different ways you can do this either through a reverse mortgage or by downsizing. If you don't want to downsize so your kids will always have a home to come to, then opting for a reverse mortgage might be a better option for you.
Hopefully these tips help get you started on ways you can use your home equity. Of course there are plenty more but these are some of the top things on my list.
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