Home equity is the portion of your property’s value that you own outright. To determine how much equity you have, subtract the balance on your mortgage from the house’s current market value.
For example, if you paid cash for your home, you’d start out with full equity in the property. If you put 20% down, you would start with 20% home equity. That amount would tick upward with every mortgage payment.
The faster you grow your equity, the faster you own your home entirely. Building equity increases your net worth, boosts your credit score, reduces how much interest you’ll pay over the life of your loan and allows you to borrow against the value of your home, among other benefits.
1. Make a large down payment
You’ll have less to repay over the life of the loan, and you’ll incur less interest. If you put down at least 20%, you can avoid private mortgage insurance (PMI), which can equal up to 2% of your loan total every year.
If you buy a home for $300,000 and put 10% down, that’s close to $6,000 a year just on PMI.
If you’re struggling with your down payment, consider lenders that offer down payment assistance. Chase Bank and Bank of America have grant programs that can increase your down payment by as much as 3%.
Chase Bank
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a DreaMaker℠ loan
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Offers first-time homebuyer assistance?
Bank of America Home Mortgage Loans
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, Affordable Loan Solution® mortgage, Doctor loans
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Terms
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Credit needed
Conventional loans typically require a 620 credit score
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Minimum down payment
3% with Bank of America’s Affordable Loan Solution® mortgage loan
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Offers first-time homebuyer assistance?
Choosing a lender with lower closing costs, like Alliant Credit Union, frees up more funds for your down payment. Alliant also doesn’t charge an application or escrow waiver fee, and there’s no cost to become a member.
Alliant Credit Union Mortgages
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Membership requirements
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Types of loans
Conventional, FHA, USDA, VA, jumbo, doctor, construction, refinance, HELOC
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Terms
Fixed rate: 15, 20 or 30 years; Adjustable rate: 5, 7 or 10-year initial period
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Credit needed
620 for conventional loan, 500 for FHA loans with 10% or more down and 580 for FHA loans with 3.5% down
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Minimum down payment
0% with Alliant Advantage Mortgage (AAM), 3.5% with FHA loan, 0% with VA and UDSA loan
2. Make bigger mortgage payments each month
If you’ve already closed on your home, you can add equity by paying more than your mortgage payment each month.
Even one extra payment a year can save you tens of thousands of dollars over the life of your payment, allowing you to accrue more equity sooner. Be sure to tell your lender you’re allocating the extra funds toward your principal, not the interest.
For example, if you take out a $420,000 mortgage with a 30-year term and a fixed rate of 6.5%, one extra payment per year will allow you to reach 100% equity more than five years early.
You’ll also save $120,000 in interest payments.
3. Renovate
Simple updates to your house can increase its value by thousands of dollars. According to a 2024 study in the Journal of Light Construction, homeowners who replace their garage door (average cost: $4,500) nearly double their investment through increased home value.
Replacing a steel entry door (around $2,355) has an 188% return on investment, according to the report, while even repainting an interior room can deliver a return of 107%, according to Angi.
An appraiser listed with the Federal Finance Institutions Examination Council can suggest which upgrades will give you the most bang for your buck.
4. Remodel
Remodeling is a bigger lift than just renovating, one that involves making significant changes to your house, like adding a room or finishing a basement.
Most remodels cost more than the value they add, but, as long as you don’t finance by borrowing against your home, you’ll increase your equity and enjoy a new kitchen, bathroom or other space, as well.
An upgraded bathroom can add 50% to 65% of its cost in value. Kitchen renovations have a return on investment of between 50% to 96%. According to Angi, however, it can exceed 100% if you add storage space, upgrade appliances and swap out the cabinetry.
You can leverage equity to access cash through home equity sharing or a home equity loan.
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
5. Refinance
If you took out your home loan when interest rates were higher, you could refinance to a lower rate and shrink your monthly mortgage payments. That would free up more money for additional principal payments or renovations, which would boost your home equity.
There are additional expenses associated with a refinance mortgage, including closing costs that range from 3% to 6%. So, make sure the return on investment is high enough.
Refinancing rates with the Chicago-based lender Rate are significantly lower than the industry average.
Rate
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Annual Percentage Rate (APR)
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Types of loans
Conventional, FHA loan, VA loan, jumbo loan, physician loan, refinancing, HELOC, reverse mortgage
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Terms
15-year and 30-year terms for fixed-rate mortgages; adjustable-rate mortgages have 5-year, 7-year or 10-year introductory periods
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Credit needed
620 for conventional, 580 for FHA loans
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Minimum down payment
Home equity FAQs
What is home equity?
Home equity is the value of your house minus what you owe on it. As your home grows in value and you pay down debt, you’ll have more equity.
What’s the best way to build home equity?
To build equity in your home, you can pay down your home loan or increase the value of your home (or both). You can pay down your debt faster by making extra payments or refinancing at a lower rate, allowing you to put more towards the principal each month. You can increase the value of your home by taking on projects with a high return on investment, such as updating a garage door or remodeling your kitchen.
Is it worth it to make biweekly mortgage payments?
Making a mortgage payment every other week instead of once a month will help you pay down your mortgage faster. With this method, you make 26 payments each year that are half what you would pay monthly. That will add up to an extra month of payments at the end of the year, saving you thousands and increasing your equity faster.
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