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When Paul and I met, we both had a car payment, mounds of credit card debt and zero Home Equity. Most of our debt was from going out to eat, or just going out period, then clothes shopping for me, and the general young, dumb and didn’t-know-credit-cards-were-bad purchases. After 10 years together we have paid off all of our bad debt and have worked on building a nice nest egg for our future and for our children’s futures as well.
Back when we moved into our home in 2012, I shared with you some of my tips to keep your mortgage lower,along with ways to upgrade your home without breaking the bank, and how to avoid paying Private Mortgage Insurance for years and years and years….
Now that we have been in the home for fouryears, I am ready to share with you exactly how we put those ideas into practice, and the final result!
How we Built $100,000 in Home Equity
We did not have a huge down payment going in, just about 3% of the loan value BUT we did that for good reason. We also wentwith a shorter loan term that will, in the end, save us approximately $45,000in interest over the life of the loan (that’s going from memory).
Going with a 20 year note opposed to the more common 30 year note only tacked on about$175 per month to our monthly mortgage payment. Totally worth itin the long run PLUS we will have it paid off ten years faster and think of that home equity!
We chose to keep some of our down payment funds aside to complete some upgrades immediately after moving in. Since we opted to do most of the upgrades ourselves instead of having the builder do them – whether hired or actually doing them ourselves – our original loan amount was lower than the selling price of most other homes in our neighborhood at the time, and we were not in a rush to complete any specific project at all.
We have had…
Awrought iron fence installed, poured a new {extended} concrete patio slab out back, upgraded the linoleum in the boys’ bathroom to tile, finished both of the bedrooms downstairs, complete with a hallway and its own super-chic bathroom.
We have finished a super awesomewet bar in the basem*nt using granite counter tops, we have completed all of the landscaping and installed some pretty sweet above-the-garage-door storage shelving units in the garage as well.
Before/In Progress:
Done:
Had the builder completed the granite, the extra concrete, usedREAL tile instead of linoleum, all of that cost (and labor!) would have been rolled into the purchase price of our home. Effectively into our loan as well. Which in turn would have raised our mortgage payment for the entire life of the loan.
This would have resulted in oodles of interest charges, an increase in Private Mortgage Insurance rates (calculated at a rate approximately 0.55% of the entire loan value, to be paid monthly until you reach a threshold – go here for more info) and our home would not have the current loan-to-value ratio we have worked so hard to build.
As these tips helped to keep our initialloan amount low(er), they alsokept our mortgage payment lower, allowing us to nest egg funds for those upgrades we wanted all along.The real trick is to put money in savings every. single. month. Even if only $75 or up to $1,000 or more, putting whatever extra funds you have into savings is the trick.
Treat your savings account like a monthly bill.
We were able to pay for those major upgrades out of pocket – and in CA$H – saving us thousands of dollars in interest over the life of the loan.
THOUSANDS!
I’m telling you this not to brag – although I am pretty proud of ourselves!– but to explain that by utilizing these tactics along with the natural rise in property value, our home is now worth about $65,000 MORE than our original loan amount when we moved in three years ago. Home equity in da bank!
In addition to these upgrades, we have worked to pay off about $40,000 of our loan – through regular monthly mortgage payments and small (ish) but effective additional principal payments.
The builder just finished a home next to ours that sold for exactly what ours is worth. And for $100k more than what we currently owe on our home.
This means that in the fouryears we have lived in our home we have built up $100,000 in home equity. There is NO way we would have been able to build that kind of equity – especially with our pitifuldown payment – had we purchased the home the way we wanted it in the beginning.
In addition to having all of that beautiful home equity staring usin the face, we have also been able to DROP OUR PMI insurance, which was about $100 per month! That is going straight into savings now.
Note that I am just an average girl, working my butt off to pay down my mortgage and afford nice things. I do not have a degree in finance, these tips are what worked for Paul and I and our family. You should, of course, make your own financial decisions and seek an adviser if you have financialquestions.
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