The Five-Year Equity Rule.

Why five years?

When you buy a home, plan on staying there for approximately five years. Why so? You need equity in order to sell the home profitably.

What is equity?

Equity is your percentage of ownership, versus how much the bank owns. With any mortgage loan, the first few years of payments go primarily toward paying interest than to your principal. To build enough equity to sell and either break-even, or profit, you want to recoup closing costs and fees. Closing costs and closing fees may amount to 14% of the purchase price.

Tips to building equity:

Put more money down.

If you put 20 percent down, this is standard (thus consider yourself fine). Yet, if you can put more down, consider doing so.

Pay your mortgage on time and in full.

Paying back your mortgage (also referred to as your principal) builds equity. The longer you pay, the more equity you build.

Make additional mortgage payments.

You can add an extra amount to your mortgage payments, when possible. This will also help you reduce private mortgage insurance. It may also allow you to refinance to a private mortgage insurance-free loan, once you reach 22% equity (again, sorry about the math :).

Let time and the housing market work for you.

The housing market typically rises one to two percentage points above inflation each year. You may also gain more value due to your home increasing in value over time.

Conclusion.

Building equity takes time, money, and a bit of patience. Thus, following the five-year equity rule will benefit you when you do (indeed) decide to sell your home.