One thing's for sure: homeowners love talking about their equity. And proud they should be. After all, equity is the amount of value in an investment -- in this case a house -- that belongs to the owner outright. Here's how it works: When you buy a house with a mortgage but make a low down payment or none, you start out with very little or no equity. But as you pay down your mortgage, your equity increases exponentially -- especially if the house's market value increases. With planning, you can structure your home purchase so that the property comes with equity built in.
Place a hefty down payment on your house, generally at least 10 percent to 20 percent of the home's sale price. A down payment of this size will amount to at least 10 percent to 20 percent equity in your new home. For example, if you purchase a house for $100,000 and put 20 percent down, or $20,000, you will have $20,000 of equity in the house from day one. You can amass a sizable down payment by saving your earnings or cashing in some stocks, or you may withdraw funds from your retirement accounts.
Transfer the equity from another asset to your new house. Apply for an equity loan from your lender of choice and transfer the cash you get from the lender to the closing agent to seal the deal. Mortgage lenders allow home buyers to borrow against assets that have equity, such as another property, to increase the equity in your newly acquired asset. This approach reduces your equity in one property as it increases it in the other, but it could work well if you inherited a property free of debts and liens or acquired real estate holdings before marriage.
Pay cash for the house, which gives you 100 percent equity from the get-go. To pull this off, you and your spouse should start saving your income as soon as you decide to go the cash route. You also must search for a home -- most likely a foreclosure or auction property -- within your price range. You may have to shop around for a while to find a home that you can buy outright.
- As a last resort, to buy a house with equity, consider borrowing your down payment from trusted relatives, such as your parents or grandparents. Show good faith by paying back the loan as quickly as possible.
- With an A-list credit rating, you could take out a low-interest signature loan and purchase a house outright at auction.
- Put any cash gifts you receive from relatives and friends for your wedding in a savings account to use toward the purchase of your new home.
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