The Five Year Equity Rule and Other Smart Moves for new Homeowners


The Five Year Equity Rule and Other Smart Moves for new HomeownersFor new homeowners, if you managed to buy a house in today's market, you definitely have a lot to celebrate. So now what? Well, whether you just purchased your dream home and plan to stay in it forever, or a property you hope to use as a stepping stone to better things, there are a few things you need to know in order to make your investment work for you.

What is equity?

Equity is essentially the amount of your home that you own and is calculated by subtracting the amount you still owe (or that the bank owns) from its value. The more equity you have in your home, the more leverage you have to take out a home equity loan or sell the property at a profit.

What's the Five-Year Equity Rule?

The Five-year Equity Rule is a guideline that will help you make the most of your property investment. Essentially, experts suggest that owners build equity for approximately five years before trying to sell, refinance, or take out a home equity loan. Otherwise, you may end up losing money on those transactions.

Do I really have to wait 5 years to do anything with my home?

The Five Year Equity rule is just a guideline. You may be in a strong position to refinance or sell earlier than that, or you may have to wait a year or two longer. The point is that when you purchase a home, it's important to consider your long-term goals and be ready to put in the time and money it takes to get a meaningful return on your investment.

How can I build home equity?

You can start by putting down as much as you can for a down payment. After that, it's pretty simple: make your payments on time (pay extra if you can), and be patient. Like with any major loan, it will take some time for you to stop paying interest and fees and start actually getting at the principal. In addition, it's likely that your home's value will increase naturally, especially if the housing market continues to grow the way it has been in recent months.

Are there other ways to build home equity?

We're glad you asked! You can definitely build equity by making improvements and upgrades to your home, and just by taking good care of the property, inside and out. Schedule regular maintenance on the important stuff, like your heating and cooling system, plumbing, roof, lawn care, and the like. Even a professional cleaning and a new coat of paint can add value to your home. Finally, if you have the money, consider investing in minor or major remodeling projects where they are most needed.

For all of your home insurance questions, call or contact Executive Insurance & Financial Services today.

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