How to Build Home Equity: 5 Ways to Build Equity Faster

Home equity can be one of the most valuable financial benefits of owning a home. As you pay down your mortgage and your home’s value increases, you build equity that can contribute to your overall net worth.

But how do you build equity in a home faster?

There are two primary ways: pay down what you owe on your mortgage and increase your home’s value. Some factors, such as market appreciation, are largely outside your control. Others—such as making extra mortgage payments or completing strategic home improvements—are actions you can take yourself.

In this guide, we’ll explain five ways to build home equity and what homeowners should know about each strategy.

What Is Home Equity?

Home equity is the difference between your home’s current market value and the amount you still owe on your mortgage.

The basic formula is:

Home Equity = Current Home Value − Mortgage Balance

For example, if your home is worth $400,000 and you owe $300,000 on your mortgage, you have $100,000 in home equity.

Your equity can increase when:

• You pay down your mortgage principal.
• Your home increases in value.
• You make improvements that increase your home’s market value.
• You make additional payments toward your mortgage principal.

Your equity can also decrease if your home’s value falls or you borrow against your existing equity.

>> Find out exactly what you can afford with a Mortgage Calculator.

1. Make a Larger Down Payment

One of the simplest ways to significantly boost your ownership stake and start with more home equity is to make a larger down payment when you purchase a home. A larger down payment can significantly boost your starting equity in a valuable asset by reducing how much you need to borrow money. A 20% down payment gives you twice the starting equity of a 10% down payment.

For example, if you purchase a $400,000 home with a 20% down payment, you’ll put $80,000 toward the purchase and begin with approximately $80,000 in equity based on the home’s value, though lenders may use its appraised value to calculate available equity.

A larger down payment also means you borrow money in a smaller amount, which can reduce the amount of interest you pay over the life of the loan and help you avoid mortgage insurance, including private mortgage insurance on many conventional loans.

However, 20% down is not required to buy a home. Many mortgage programs allow buyers to purchase with considerably less. Depending on the type of mortgage and your circumstances, a smaller down payment may be appropriate.

In this example, the owner has about $80,000 in equity at the start, and that equity grows as the outstanding loan balance falls and you pay down principal. A larger down payment can help you build equity faster from the start, but it isn’t necessarily the right financial choice for every buyer. It’s important to consider your cash reserves, closing costs, interest rate, monthly payment, other financial goals, and how changing property values can affect this valuable asset if you lose equity because prices fall or you take on more debt.

2. Let Your Home Appreciate in Value

Home appreciation is an increase in your home’s market value over time. It can be one of the biggest contributors to home equity, but it is also one of the factors homeowners have the least control over.

There are a few reasons appreciation matters: it can help homeowners create wealth over time, especially when gains build on top of the equity they already own.

For example, imagine you purchase a home for $300,000 and put $60,000 down. You initially have approximately $60,000 in equity, assuming the home’s value hasn’t changed, and

Several years later, your home is worth $350,000 and you’ve reduced your mortgage balance to $220,000.

Your equity would then be:

$350,000 − $220,000 = $130,000

Your equity increased because you both paid down your mortgage and gained $50,000 in home value.

A larger down payment also means a smaller loan balance from the start, which can lower your monthly mortgage payment and help avoid mortgage insurance costs. Avoiding private mortgage insurance typically requires a down payment of at least 20%, though many buyers still purchase with less. The typical down payment for first-time buyers is 8% of the home’s value.

However, appreciation isn’t guaranteed. Home values can rise or fall depending on the local real estate market, housing supply and demand, economic conditions, interest rates, neighborhood changes, and other factors that affect existing homeowners too.

That’s why homeowners shouldn’t rely on appreciation alone when thinking about how to build equity.

3. Pay Down Your Mortgage Faster

Every time you make a mortgage payment, part of the payment typically goes toward reducing your principal balance while the rest covers interest paid.

As your loan balance decreases, your equity increases—assuming your home’s value stays the same.

You may be able to accelerate this process by:

• Making additional principal payments.
• Paying more than the required monthly payment.
• Making an extra mortgage payment each year.
• Choosing a shorter loan term when refinancing or purchasing.

Consider a Shorter Mortgage Term

A 15-year mortgage generally requires higher monthly payments than a 30-year mortgage, and each mortgage payment is split between interest and principal, with more of each payment going toward the loan balance sooner.

For homeowners who can comfortably afford the higher payment, as more principal is paid down, the loan balance falls and equity increases faster, especially with a fixed rate that keeps payments predictable over the life of the loan.

However, refinancing isn’t automatically beneficial. Closing costs, the new interest rate, the remaining balance on your current loan, and how long you expect to stay in the home should all be considered before refinancing, and faster principal reduction can also reduce total interest paid over the life of the loan. If possible, pay closing costs upfront rather than rolling them into the new mortgage.

4. Make Extra Mortgage Payments

You don’t necessarily need to refinance to build equity faster, since a 15-year mortgage is a shorter fixed-rate option than a 30-year mortgage.

Another option is to make extra payments toward your mortgage principal.

For example, you could:

• Add $100 to your monthly mortgage payment.
• Make one additional mortgage payment each year.
• Put part of a work bonus or other windfall toward your mortgage.
• Make occasional lump-sum payments toward your principal.

Before making extra payments, check with your loan servicer to understand how additional payments are applied. You generally want the extra amount to be applied toward your principal balance. If you do refinance, it may also eliminate Private Mortgage Insurance costs in some cases. Paying closing costs out of pocket instead of rolling them into the new loan can also help preserve equity.

What About Biweekly Mortgage Payments?

Some homeowners choose to make mortgage payments every two weeks instead of once a month.

There are 52 weeks in a year, so a biweekly schedule results in 26 half-payments, which equals 13 full monthly payments over a year rather than 12.

That additional payment can help reduce your mortgage balance faster, so more of all the money you borrowed gets repaid sooner and you may lower the total interest you pay.

However, homeowners should check whether their lender, loan servicer, or mortgage servicer offers a biweekly payment program and whether there are any fees associated with it. You may also be able to accomplish a similar result by making one additional full payment each year.

>>Should you refinance?

5. Make Strategic Home Improvements

Home improvements can potentially increase your home’s value, which can increase your equity.

But not every remodeling project adds as much value as it costs.

If you spend $50,000 on a renovation that increases your home’s market value by only $30,000, you’ve added value to the property but haven’t necessarily increased your equity by the full $50,000 you spent.

The potential return on a renovation depends on factors such as:

• The type of improvement.
• The quality of the work.
• Your local housing market.
• Buyer preferences in your area.
• The condition of the rest of the home.
• How much comparable homes are selling for.

Projects that improve a home’s condition, functionality, curb appeal, or buyer appeal may be worthwhile, but homeowners should consider both the personal benefit and potential resale value before making a major investment.

What Builds Home Equity the Fastest?

There isn’t one strategy that will build equity at the same rate for every homeowner.

Generally, paying down your mortgage reduces your debt in a predictable way, while home appreciation can increase equity significantly but is outside your control.

Strategic improvements can also increase equity if they add more value to the home than they cost.

For many homeowners, the most practical approach is a combination of:

1. Making regular mortgage payments.
2. Making additional principal payments when financially appropriate.
3. Maintaining and improving the home.
4. Allowing time and potential market appreciation to work in their favor.

In short, key takeaways home equity come down to this: equity is a valuable asset that grows as you pay down your mortgage and as your home’s market value rises, helping build long-term wealth.

>> How much house can you afford?

How Long Does It Take to Build Equity in a Home?

You begin building equity as soon as you purchase a home if you make a down payment.

From there, the amount of equity you have depends on several factors, including:

• Your original down payment.
• How quickly you pay down your mortgage.
• Your mortgage interest rate and loan term.
• Changes in your home’s market value.
• Improvements you make to the property.
• Any additional borrowing against the home.

For example, someone who makes a 20% down payment starts with substantially more equity than someone who puts 5% down. However, appreciation and mortgage payments can change the amount of equity each homeowner has over time.

Can You Use Home Equity?

Yes. Once you’ve built sufficient equity, you may have options for accessing it, depending on your financial situation and lender requirements.

Common options include:

• Home equity loan: Borrow a lump sum against your ownership stake; this is often described as a second mortgage and uses your home as collateral.
• HELOC: A revolving line of credit secured by your home.
• Cash-out refinance: Replace your current mortgage with a larger one and take the difference in cash, which may be worth comparing with other loans before you decide.

Home Equity Loan

A home equity loan allows you to borrow against the equity in your home, typically receiving the money as a lump sum and repaying it over time.

Home Equity Line of Credit (HELOC)

A HELOC is a revolving line of credit secured by your home. It allows you to borrow against available equity during a specified draw period, subject to the terms of the loan.

Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger mortgage. You receive the difference between the new loan amount and your existing mortgage balance as cash, subject to the lender’s requirements.

Unlike simply paying down your mortgage, borrowing against your equity increases the amount you owe and can reduce your equity position.

Before using home equity, consider the interest rate, fees, repayment terms, tax implications, and the risk of using your home as collateral.

Frequently Asked Questions About Building Home Equity

What is the fastest way to build equity in a home?

The fastest way depends on your individual circumstances. Making additional payments toward your mortgage principal can build equity by reducing what you owe. Increasing your home’s value through appreciation or strategic improvements can also increase equity, although appreciation is outside your control.

Does paying more on my mortgage increase equity?

Yes. When an additional mortgage payment is applied to your principal balance, it reduces the amount you owe. Assuming your home’s value remains unchanged, that increases your home equity.

Does renovating a home increase equity?

A renovation can increase equity if it increases your home’s market value. However, the increase in value may be less than the cost of the renovation. Research local buyer preferences and comparable homes before making a major improvement.

Does a home automatically build equity?

Not necessarily. Homeowners can build equity as they pay down their mortgage, but changes in the home’s market value also affect equity. If a home’s value falls, the owner’s equity can decrease even while the mortgage balance is being paid down.

Is home equity the same as the amount of money I’ve paid toward my house?

No. Home equity is based on your home’s current market value minus your outstanding mortgage balance. Because your home’s value can change over time, your equity may be different from the total amount you’ve paid toward your mortgage.

What can I do with home equity?

Depending on your financial situation and lender requirements, you may be able to access home equity through a home equity loan, HELOC, or cash-out refinance. You can also leave the equity in the home and potentially realize its value when you sell.

The Bottom Line

Building home equity can be an important part of building long-term wealth through homeownership.

You can build equity by paying down your mortgage, making additional principal payments, maintaining or improving your home, and benefiting from potential appreciation over time.

Some factors are within your control, while others aren’t. The key is understanding how each one affects the difference between what your home is worth and what you owe on it.

If you’re thinking about buying or selling a home and want advice based on your local market, a knowledgeable real estate agent can help you understand your options.