How to Build Equity in a Home: 12 Specific Tips

What is home equity?

Home equity is the portion of your home that you actually own outright, not what’s still owed on your mortgage. It’s the difference between your home’s market value and the remaining balance on your mortgage.

For example, if your home is worth $400,000 and you still owe $250,000 on your mortgage, your equity is $150,000. As you pay down your mortgage and your home value increases, your equity grows.

Home equity is valuable because it represents a significant part of your net worth and can be used for future investments or financial needs, like home improvements or even retirement funds.

How to build equity in a home

Some of the tips below are quick, easy wins you can put into action right away, while others take a bit more planning, patience, and maybe even some investment of time or money. The payoff, though, can stick with you for years, even into retirement.

As you go through each tip, we’ve also included helpful online tools, resources, and calculators to make it easier to map out your plan for growing home equity without the guesswork.

1. Pay $200 extra toward your principal each month

By adding just $200 to your monthly mortgage payment, specifically toward your principal, you can significantly reduce the life of your loan. On a $300,000 mortgage at 5% interest, paying an extra $200 each month could shave off three years of payments and save over $25,000.

This simple change accelerates your equity growth without having to overhaul your lifestyle.

The Federal National Mortgage Association, known as Fannie Mae, provides a handy Extra Mortgage Payment Calculator you can use to see how much equity you can grow using other extra payment amounts.

2. Refinance to a 15-year mortgage

If you’re financially able to handle higher monthly payments, refinancing to a 15-year mortgage is one of the most effective ways to build equity faster. With a shorter loan term, more of your monthly payment goes toward the principal, not interest. On a $300,000 mortgage at 5%, switching from a 30-year to a 15-year loan could save you over $96,000 in total interest, helping you gain full ownership much sooner.

The Federal Home Loan Mortgage Corporation, known as Freddie Mac, provides a 15-year vs. 30-year Term Mortgage Calculator to help you see the difference this can make to your loan amount and interest rate.

3. Make one extra mortgage payment annually

Another way to build equity faster without changing your monthly budget is to make one extra mortgage payment each year. If you have a $300,000 loan at 5% interest, one extra payment annually (about $1,610) could shorten your mortgage by about six years and save you over $50,000 in interest. 

Consider using your tax refund or bonus to make this extra payment and watch your equity grow.

To see how one extra mortgage payment might impact your equity, try Freddie Mac’s Extra Payments Calculator. This simple online tool allows you to change the amount and frequency of extra payments as well as the loan balance and interest rate.

4. Switch to biweekly mortgage payments

Switching to biweekly mortgage payments means you’ll make 26 half-payments a year, which adds up to 13 full payments instead of 12. This results in one extra payment annually without much thought or effort. 

Here again, for a $300,000 loan, that extra payment can shave about six years off a 30-year mortgage term and help you build equity faster with less strain on your budget. You’ll also save tens of thousands of dollars on interest.

The USAA Educational Foundation provides a Bi-Weekly Mortgage Calculator that will show you the time and money you can save by paying your mortgage every two weeks rather than monthly.

»Learn more: Curious what your monthly payment actually looks like for a home you’re eyeing? Use the mortgage payment calculator to get a quick, no-guesswork estimate and see how your numbers stack up before you make your next move.

5. Remodel your kitchen for a $20,000 equity boost

Upgrading your kitchen can add immediate value to your home. The Journal of Light Construction’s Cost vs Value 2025 report, a mid-range minor kitchen remodel typically delivers about a 113% cost recouped.

This means that for every $100 you spend on your kitchen remodel, you can increase the resale value of your home by about $113. To put this into perspective, if you spend $25,000 on a minor kitchen remodel for your $300,000 home, it could potentially be worth about $28,250 more in resale value from the project alone, bringing your overall home value to roughly $328,250.

In addition, an upgraded kitchen isn’t just about resale value. You get to enjoy a more functional, modern space while you’re still living there.

And if selling is on your horizon, it’s a smart move. In HomeLight’s Top Agent Insights Spring/Summer 2026 report, 84% of agents agree that move-in-ready features, like updated kitchens, make homes more appealing and easier to sell.

This kind of upgrade can help your home sell faster and potentially bring in higher offers. Focus on the features buyers tend to love most, like modern appliances, quality countertops, and refreshed cabinetry.

6. Add square footage to increase your home’s value

Adding square footage, whether it’s an extra bedroom or extending your living space, can dramatically increase your home’s value. For example, adding a 400-square-foot bedroom that typically costs between $32,000 and $100,000 can add roughly $19,200 to $70,000 in home value.

After factoring in costs, you’d still see a substantial equity boost from this investment, which can be especially beneficial in growing neighborhoods.

While a home addition typically requires an upfront investment of about $80 to $20 per square foot, that space can continue to pay off over time by boosting your property’s overall value and long-term appreciation. And much like a kitchen remodel, adding more usable square footage isn’t just a financial move. It’s also an upgrade to your everyday comfort and quality of life.

7. Rent out space for extra income toward your mortgage

If you have unused space like a basement or a guest room, renting it out can generate extra income that you can put directly toward your mortgage. Renting a room for $800 a month could mean $9,600 a year in extra payments, helping you pay down your loan faster and build equity without relying solely on your regular income.

Services like Rentalios, Zillow Rentals, and Calculator Academy provide online tools to help you estimate how much you can charge to rent out a room in your home. 

8. Stay in your home for at least five years

Equity grows naturally as home values increase, but it takes time. By staying in your home for at least five years (the five-year rule), you can ride out market fluctuations and build equity as property values rise. This is especially important in the early years of a mortgage when more of your payment goes toward interest rather than principal.

There are also tax benefits when you stay in your home longer, especially when it comes to avoiding the capital gains tax. To take advantage of money-saving tax exclusions, you should live in your primary residence for at least two years. 

9. Make energy-efficient upgrades

Installing energy-efficient features like solar panels, new windows, or a smart thermostat can boost your home’s value and lower your energy bills. 

For instance, energy-efficient windows can cut your heating and cooling costs by up to 30%, so your home stays comfortable without your energy bill getting dramatic every month. Replacing your windows usually costs anywhere from $3,400 to $11,800 on average, with potential returns of roughly $2,400 to $10,000 depending on the materials and design you choose.

More and more buyers are paying attention to how energy-efficient and environmentally friendly a home is, and many are even willing to spend more for those kinds of features.

That’s why upgrades like energy-efficient windows, doors, solar panels, or even switching to electric appliances can be a smart move, especially with incentives like the Inflation Reduction Act helping to offset some of the costs. Over time, these improvements can lower your utility bills, reduce your environmental impact, and potentially increase your home’s value and equity.

10. Pay off other debt to free up cash for your mortgage

High-interest debt like credit cards or personal loans can quietly chip away at your budget month after month. For example, paying off a $10,000 credit card balance at 18% interest can free up hundreds of dollars every month that you can redirect toward your mortgage. That extra breathing room helps you pay down your loan principal faster, which in turn speeds up your equity growth.

Credit report company Experian provides a useful Credit Card Payoff Calculator to figure out how long it might take to pay off your existing debt and how much interest costs you might be able to channel to other monthly expenses.

11. Make a 20% down payment to start with more equity

Putting down 20% on a home purchase means you’ll have significant equity from day one. For a $300,000 home, a 20% down payment gives you $60,000 in equity right away. This also helps you avoid private mortgage insurance (PMI), saving you even more money over time, which you can redirect toward additional mortgage payments.

Many lenders allow you to use gift funds to increase your down payment, provided you document the source and confirm it’s a gift, not a loan. Try HomLight’s Down Payment Calculator to see how much you should put down on a house and learn more about the loan options that work best for you.

»Learn more: If you’re using gifted funds for your down payment, don’t overthink the paperwork. Use the Mortgage Gift Letter Generator to instantly put together a professional letter lenders will accept.

12. Avoid rolling costs like closing fees into your loan

When buying a home, it might be tempting to roll your closing costs into your mortgage to reduce upfront expenses. However, this adds to your loan balance and reduces your initial equity. For example, rolling $5,000 in closing costs into your mortgage means you’re starting with less equity and paying interest on that extra amount over time.

HomeLight’s Closing Costs Calculator helps you estimate how much cash you might need at the closing table for lender and third-party fees. Plug in your details to get a clearer view of your budget so you can head into closing day without any surprises.

Let your equity grow until you need it

Borrowing against your home equity can be a strategic move, but it can also chip away at financial leverage you might need in the future. Try not to treat your equity like a quick source of cash for things that lose value fast. Cars, RVs, boats, and similar purchases might feel worth it in the moment, but they don’t build long-term financial value. 

The stronger approach is to let your equity grow over time so it can support bigger goals later, like buying your next home.

If you ever find yourself in the situation of needing to buy a new home before selling your current one, you don’t necessarily have to rely on a traditional home equity loan or home equity line of credit (HELOC). HomeLight’s Buy Before You Sell program is designed to make that transition smoother.

It allows you to unlock a portion of your home equity so you can make a competitive, non-contingent offer on your next home. The Equity Unlock Amount can be used toward your down payment, closing costs, moving expenses, or even necessary repairs on your new place.

This way, you’re able to move forward with your purchase without waiting for your current home to sell first. Plus, you’ll be able to move only once, avoiding the stress of juggling two closings, coordinating temporary housing, or dealing with the hassle of packing and unpacking twice.

Learn more about HomeLight’s Buy Before You Sell program in the short video below:

From monthly payments to lasting equity

Building home equity doesn’t happen overnight, but steady, intentional choices can make a real difference over time. Whether it’s paying down your mortgage faster, making smart home improvements, or simply letting time and market growth do some of the work, every bit helps stack the odds in your favor. 

The key is to think long-term and make short-term sacrifices when needed. As your equity grows, it can unlock bigger opportunities like upgrading your home, funding major goals, or just giving your finances a little more breathing room. Over time, your house becomes less of a monthly obligation and more of a solid financial foundation you can actually use.

If you’re planning to sell or buy in the future, that equity can play a big role in helping you make your next move with confidence. Partner with a top-rated agent in your market using HomeLight’s free Agent Match tool to make the most of your equity when it’s time to buy or sell.