How to Build Home Equity

Your home equity represents your home’s current value minus any mortgage balances or existing liens. When you first purchase a home, your equity equals your down payment amount. From there, equity grows as you pay down your mortgage’s principal and your home’s value appreciates over time.

As you build equity in your home, you’re essentially creating wealth that can support major life goals, from funding home improvements to securing your retirement. Building home equity doesn’t happen overnight, but with the right approach, you can see meaningful progress sooner than you might expect. Whether you’re a new homeowner or looking to optimize your current financial strategy, you can use the methods we cover to help you build equity over time.

Start with a larger down payment

One of the most reliable ways to build equity also happens to be one of the quickest methods available. By increasing your down payment on a house, you’re putting more equity directly into the property you purchase from day one.

Consider this example: if you buy a home valued at $400,000 with a $20,000 down payment (5% of the purchase price), you’ll owe $380,000 on your mortgage and have $20,000 in equity. However, if you increase your down payment to $80,000 (20% of the purchase price), you would owe $320,000 on the mortgage and instantly give yourself $80,000 in equity.

Make extra mortgage payments

Part of every mortgage payment goes towards paying off your loan’s principal and interest, with most of the payment going to interest in the loan’s early years. Zillow’s Amortization Calculator can be used to estimate how much principal and interest you’ll pay over the life of your loan. If you pay down the principal faster, your equity should increase faster. You can accomplish this by either:

Paying more

Adding extra money to your mortgage payment either monthly or when you have additional cash can help you gain equity faster. Before you pay more, make sure your mortgage lender or servicer applies it directly to your principal. This could be a wise use of tax refunds, work bonuses, inheritance money or other lump-sum payments that can go toward the principal balance. You could also round up your regular payments to the nearest hundred or thousand dollars to help speed up mortgage repayment.

Paying faster

If your mortgage servicer allows it (and most do), you could divide your monthly mortgage payment into two biweekly payments, for a total of 26 payments per year. In effect, instead of 12 monthly payments a year, you’d make the equivalent of 13 monthly payments, paying down your mortgage and building equity faster. Be sure to confirm with your servicer that the extra money goes immediately to the principal, instead of waiting for the second half-payment.

Refinance to shorten the loan term

This strategy depends on the type of loan term you currently have and other factors. If you have a 30-year mortgage, for example, you might want to consider refinancing to a 15-year loan, which usually has a lower rate. Most financial experts consider this worthwhile only if you can drop your interest rate by at least 1.5%. Factor in any refinance closing costs before making this move. Also make sure your mortgage doesn’t have a prepayment penalty. It’s not common, but it’s better to check.

Keep in mind a shorter loan term means higher monthly payments — but you’ll pay significantly less interest over the life of the loan while building equity much faster.

Make home improvements that add value

Certain home improvement projects can increase the value of a home, which can offer unrealized equity potential.

There are some projects that consistently deliver higher returns, such as bathroom updates, kitchen renovations and garage door replacements. In a 2024 study, Zillow found that the home improvements that added the most value were new appliances, outdoor entertainment and LED lighting. When deciding which projects to tackle, consider your budget. Even smaller projects, like fresh paint or enhancing curb appeal, can add meaningful value without requiring a large budget.

Not all projects will pay off, however. Some upgrades may cost more than the value they add, or may not appeal to buyers in your market. Before investing, consider your budget, local housing trends and whether your goal is to refinance, sell in the near future or simply grow your equity.

Keep up on regular maintenance

Regular maintenance stops small issues from becoming expensive problems that decrease your home’s worth. Simple tasks like cleaning gutters, servicing HVAC systems, touching up paint and addressing minor repairs help preserve your investment. When you stay on top of maintenance, you protect the ability for your home to continue building equity over time.

On the other hand, neglected maintenance can lead to significant value loss, making regular care of your home one of the most cost-effective ways to preserve your home’s equity.

Eliminate PMI

Making at least a 20% down payment on a conventional loan brings an additional bonus: it eliminates the private mortgage insurance (PMI) premium. PMI protects lenders if a borrower defaults on their mortgage, but the cost gets passed on to the homeowner as a monthly expense. Almost half of all homebuyers (48%) reported putting less than 20% down on a house in a 2024 Zillow buyer survey.

If you’re required to pay PMI, you’ll typically pay a monthly premium of $30 to $70 for every $100,000 borrowed. This cost is included in each mortgage payment until you reach a loan-to-value (LTV) ratio of 78% — or when you have 22% equity in the home — or when you reach the halfway point of your loan term, whichever comes first. As soon as you reach 80% LTV, however, you can request PMI removal by contacting your servicer, freeing up money sooner that can go toward additional principal payments.

Diversify your income

While windfalls, gifts and inheritances help when available, they’re typically unpredictable and not likely for the average person.

Consider alternative income sources and revisit your budget to identify money that could help accelerate your mortgage payoff. Side businesses, freelance work or optimizing your current spending can create opportunities to pay off your mortgage balance more quickly.

Every extra dollar applied to principal reduces what you owe and increases your equity stake in the property.

Stay informed about your home’s value

While you can’t control the real estate market, staying informed about your home’s value and overall market conditions can help you make smart equity-building decisions. Track your home’s worth to understand your current equity position and identify optimal timing for refinancing, selling or making improvements.

• Consider a reappraisal: A fresh appraisal provides an updated estimate of your home’s current value, giving you a clear picture of your equity growth.
• Monitor local market trends: Pay attention to home sales in your neighborhood to gauge whether property values are rising. This information can help you understand your equity position and make informed decisions about your investment.
• Use online tools: Take advantage of automated valuation tools to track your home’s estimated value between formal appraisals. Zillow’s Zestimate is one such tool.

Start building wealth through home equity

Building home equity requires patience and strategy, but the rewards extend far beyond simple homeownership. Each payment toward principal and every smart improvement adds to your wealth, creating financial stability and opportunities for future growth.

The strategies outlined above give you multiple paths to accelerate equity-building. Whether you choose to make extra payments, invest in valuable improvements or simply maintain your property well, you’re taking control of your financial future.

Remember that building substantial equity takes time, but starting with the right approach sets you up for long-term success. Your home represents more than shelter; it can be a powerful wealth-building tool that grows stronger with every strategic decision you make.