Owning a home comes with a slew of perks, not the least of which is building equity over the long run. The ability to realize increasing home equity as a homeowner is a significant driving force in buying real estate, as that equity can be tapped into in the future for several different reasons. Paying for a child’s college, consolidating high-interest debt, or in some cases, purchasing another property can all be a reality when home equity accumulates over time.
Traditionally, equity in a home begins to accumulate as the value of the home increases and the mortgage balance is paid down. While many first-time homebuyers can wrap their minds around the concept of home equity and its benefits, it is difficult to achieve in a short period. Home prices are rising steadily, and the ability to contribute a substantial amount as a down payment is a challenge for most first-time buyers.
Fortunately, there are several strategies first-time homebuyers can follow to establish equity from the time the keys to their new home are put in their hands. Here are some proven methods from home flippers across the country to help first-time homebuyers accumulate equity quickly.
LESSON 1: Buy Low
Of course, the best way to build home equity fast is to find an unbeatable deal and buy low with your first home purchase. The lower the sales price, compared to the value of the home, the more equity you have from the moment you step away from the closing table. But with housing inventory tight and rising purchase prices in countless neighborhoods, the simple method of buying low isn’t always easy to accomplish. Keep your eye on the market and consult an experienced real estate agent to help you determine the right time to buy.
LESSON 2: Consider a Fixer Upper
Cheap homes are often listed below market price because they require some work, but first-time homebuyers don’t have to be scared off by a fixer-upper. A little sweat equity goes a long way in homeownership and building equity quickly, but be sure to understand the risks. To be the best prepared, have the home inspected professionally so you are aware of any underlying issues, above and beyond cosmetic frustrations. Also, it is helpful to get estimates for any work that needs to be done before signing on the dotted line. As long as you are prepared for the potential costs to make the home comfortable to live in, buying a fixer-upper is a great way to build equity in a hurry.
LESSON 3: Leverage Loan Renovation Programs
If you’ve decided a home with some work to be done is the right move for building equity, know that you have options for coming up with the cash to finish renovations. Some loan programs are available to first-time homebuyers that take into consideration the value of the home after renovations and improvements have been completed. That means you’ll be able to borrow the funds necessary to complete the renovation work and include that amount in your mortgage. An experienced mortgage advisor can help point you in the right direction with these various programs if a fixer-upper is in your future.
LESSON 4: Seek out For Sale By Owner Properties
Many home sellers utilize a real estate agent to help streamline the process of selling their home, but those who want to save money often advertise as For Sale By Owner. Without the expert help of a qualified realtor, and a lack of understanding about the market value of the property, For Sale By Owner homes may be a way to secure a home for cheap.
LESSON 5: Broaden Your Location Scope
Some people are born to be city dwellers, but the cost of buying a home in a large metropolitan area can be prohibitive, especially for first-time buyers without a significant contribution to make up front. Broaden your scope to include properties outside the city if you want to find a lower purchase price. In most major US markets, going just an hour away from the city center can result in home prices that are more manageable.
LESSON 6: Look to the Forgotten Core of the City
If you’re dead set on being in the city, you’re not always out of luck when searching for a lower-cost home. Be sure to look to the forgotten core of the city for available homes, in neighborhoods that may be less heavily occupied or have yet to make the latest up and coming list. You can secure a cheap property that may need minimal work, and as the neighborhood grows, you’ll build equity quickly.
LESSON 7: Use Technology to Your Advantage
The last pro tip from home flippers is to establish a system to find a home to purchase so you can beat out other potential buyers. This includes using technology to your advantage by setting up automatic alerts for specific property types in certain areas, either through your real estate agent or one of the many online real estate websites. To ensure you aren’t getting in over your head, sort listings from alerts or through your own searches by price first. Starting on the low end of listings allows you to stay focused on finding the best, lower cost home to meet your needs.
Being a first-time homebuyer does not have to mean you’re waiting years to build up equity in your home. Instead, you can follow these home flipper strategies to get the most bang for your home-buying buck.