Death in the family, illness, loss of a job, or divorce can take a great toll on our daily lives and finances. If tragedy strikes and you are unable to afford your monthly mortgage payments and find yourself falling behind, you may be able to modify your home loan to catch up and avoid foreclosure.
How To Build Home Equity
As a homeowner (or soon-to-be homeowner), you most likely hear this phrase a lot, “Build up that home equity!” But why build it up in the first place?
Home equity is an important financial resource for you that you can take advantage of at a later date. Home equity is the amount of the home’s value that you officially own, so that value can go towards a variety of things like:
- Purchasing a new home
- Using it in a reverse mortgage for your retirement
- Borrowing against it to fund home improvements or college for the kids
When putting your home equity towards any of these, remember that you will have to build it back up.
Make Larger Mortgage Payments Each Month
When you make your loan payments, you probably pay the minimum amount each month. But did you know that if you pay a little more each month, that that extra money will go towards your principal payment? That way, you are not only paying your mortgage off quicker, but reducing interest over time.
You could even pay on your mortgage twice a month, but make sure that it is within your budget, allowing you to pay other bills and for other living necessities. If you are making additional payments towards the loan’s principal, be sure to tell your lender that. Otherwise, they may apply it to the next payment or late fees.
If you choose to pay extra towards your mortgage each month or pay twice a month, double check with your lender to see if they will charge you a prepayment penalty. Many mortgages may not come with a penalty, especially if the loan is an FHA, VA, or USDA loan, but always make sure.
Make Some Home Upgrades
Making improvements to your home can boost your home’s value and by extension, the equity. This is because you are making the home more valuable and desirable to live in. So if it is within your budget, consider updating your kitchen and bathrooms, landscaping to boost curb appeal, and maybe finish the basement for good measure.