Your home equity is one of the biggest factors lenders evaluate when you refinance your mortgage. It influences your approval odds, the type of refinance you qualify for, your interest rate, whether you can remove PMI, and—if you’re doing cash-out—how much money you can actually tap.

But how much equity do you really need to refinance in 2025?

Short answer:

Most homeowners need 5–20% equity to refinance, depending on loan type. For the best rates and the most refinancing options, 20%+ equity (80% LTV or lower) is ideal. Cash-out refinances typically require 20–25% equity after closing.

This guide breaks down the exact equity requirements for every refinance type, how lenders calculate your equity, how to increase your equity if you’re close to the threshold, and how to use Fincast to compare real refinance offers based on your true LTV—without any extra credit pulls.

Key Takeaways

• Equity = your home’s value minus your loan balance.

• Most refinances work with 5–20% equity, depending on the program.

• Best pricing typically requires 80% LTV or lower (20% equity).

• Cash-out refinances usually cap at 75–80% LTV, depending on property type.

• More equity = lower rates, easier approval, and a higher chance of PMI removal.

💡 Pro Tip: After you receive your Loan Estimate, upload it to Fincast. The platform benchmarks your offer based on your real equity and LTV—no extra credit pull, no spam, no sales calls.

What Is Home Equity?

Home equity is the portion of your home you truly own.

Formula

Home Equity = Current Home Value – Loan Balance

Example:

Home value: $550,000

Loan balance: $400,000

You have $150,000 in equity (27%).

But lenders don’t use the dollar amount—they use a percentage called the Loan-to-Value ratio.

How Lenders Measure Equity: Loan-to-Value (LTV)

Your LTV tells lenders how much of your home’s value is financed.

Formula

LTV = (Loan Amount ÷ Home Value) × 100

Example:

$375,000 loan ÷ $500,000 value = 75% LTV (25% equity)

Lower LTV = lower risk = better refinance pricing.

How Much Equity Do You Need to Refinance in 2025?

Equity requirements vary by loan program and refinance goal.

Below is a complete breakdown.

1. Conventional Rate-and-Term Refinance (Most Common)

This refinance simply replaces your current mortgage—no cash taken out.

• Minimum equity: As low as 3–5%

• Best pricing: 20%+ equity (80% LTV or lower)

• PMI removal: Requires 20% equity

You can refinance with very little equity, but rates and fees improve dramatically once you hit 80% LTV.

2. Cash-Out Refinance

Cash-out refinances require significantly more equity to protect lenders from risk.

Typical limits:

Example:

If your home is worth $500,000, and your lender allows 80% LTV for cash-out:

Max loan = $400,000

You must leave $100,000 in equity untouched.

3. FHA Refinance

FHA Rate-and-Term

• Up to 97.75% LTV allowed

• Equity requirement is minimal (~2–3%)

Great for homeowners with higher DTIs or lower credit.

FHA Cash-Out

• Max 80% LT

• Requires 20% equity

4. VA Refinance

VA IRRRL (Streamline)

• No equity required

• Perfect for lowering rates without an appraisal

VA Cash-Out

• Often up to 90% LTV

• Requirements vary by lender

5. Jumbo Refinance

Jumbo loans are stricter because they exceed conventional loan limits.

Typical requirement:

• 70–80% LTV

• 20–30% equity

Higher-value homes must show stronger equity to reduce lender risk.

How Home Equity Affects Your Refinance Approval and Pricing

Even if you meet the minimum equity requirement, your exact LTV matters for several reasons.

1. Interest Rate

Lenders offer their best pricing at lower LTVs.

Typical pattern:

• 95% LTV → highest rates

• 90% LTV → improved pricing

• 80% LTV → major pricing improvement

• <75% LTV → excellent rates

2. PMI (Private Mortgage Insurance)

If your LTV is above 80% on a conventional refinance, PMI is required.

If you’re at or below 80% LTV:

• PMI can be removed entirely

• Your payment falls

• Your break-even point speeds up

This is one of the most financially valuable reasons homeowners refinance after equity growth.

3. Appraisal Waivers

Strong equity increases the chance you receive an appraisal waiver, which:

• Saves $500–$900

• Removes the risk of low appraisal issues

• Cuts 1–2 weeks off the timeline

Waivers are most common around 70–80% LTV or lower.

4. Underwriting Risk

More equity = lower risk = smoother underwriting.

Higher LTVs often trigger:

• More documentation requirements

• Reserve requirements

• Stricter DTI caps

How to Calculate Your Equity Before Refinancing

This helps you know where you stand before you apply (and before lenders run numbers).

Step 1: Estimate Your Home’s Value

Use:

• Online home value tools (okay for rough estimates)

• Comparable sales in your neighborhood

• A realtor’s CMA

• Your previous appraisal if recent

The lender’s appraisal is final, but estimating helps you plan.

Step 2: Find Your Loan Payoff Amount

Your payoff is slightly higher than your mortgage balance due to interest and fees.

Check your most recent statement or request a payoff quote.

Step 3: Calculate Your Equity

Home Value – Payoff = Equity

Step 4: Convert to LTV

Loan ÷ Value × 100

Example:

Value: $600,000

Loan: $405,000

LTV = 67.5% (excellent)

How to Increase Your Equity Before Refinancing

If your equity is close to a threshold (like 80% LTV), small changes can open far better refinance options.

1. Pay Down Your Mortgage

Even $2,000–$10,000 can shift you into a better pricing tier.

2. Improve Your Appraisal

Small, inexpensive upgrades can boost your home’s value:

• Fresh paint

• Landscaping

• Deep cleaning

• Lighting updates

• Minor kitchen/bath refresh

A few thousand dollars can raise your appraisal by tens of thousands.

3. Provide Strong Comparable Sales

If you know nearby homes sold high, prepare those comps before the appraisal.

4. Avoid Cash-Out if Near 80% LTV

Cash-out raises your loan amount—and therefore raises your LTV.

If you’re close to 80% LTV, delaying cash-out may save you far more overall.

Why Equity Makes Comparing Refinance Offers Difficult

Because each lender:

• Uses different LTV pricing tiers

• Applies different risk adjustments

• Has different PMI rules

• Treats borderline LTVs differently

Example:

Two lenders may price 82% LTV differently:

• Lender A: small pricing adjustment

• Lender B: large pricing hit + PMI requirements

This makes manual comparison nearly impossible.

How Fincast Helps You Get the Best Refinance for Your Equity

Equity is one of the biggest drivers of refinance pricing—and lenders price it very differently.

Fincast fixes that.

How it works:

1. Upload your Loan Estimate

No credit pull. No new application. No spam.

2. Fincast analyzes your LTV-based pricing

Including:

• Rate

• Fees

• Points

• Credits

• PMI

• Cash-to-close

3. Vetted lenders anonymously compete to beat your offer

Your identity stays hidden.

They sharpen pricing.

You benefit.

4. You choose the best offer

If your lender is competitive, Fincast confirms it.

If not, you see exactly how much you can save.

FAQs: Home Equity & Refinancing

1. How much equity do I need to refinance?

Typically 5–20%, depending on loan type.

For best pricing, 20%+ equity is ideal.

2. How much equity do I need to remove PMI?

You need 20% equity (80% LTV or lower) on a conventional loan.

3. Can I refinance with very little equity?

Yes—FHA and some conventional programs allow 95–97.75% LTV.

4. How much equity is needed for a cash-out refinance?

Usually, you must leave 20–25% equity after closing.

5. Does more equity always mean a better rate?

Generally, yes—lower LTV = lower risk = better pricing.

6. What if my appraisal comes in low?

You may:

• Provide comparable sales

• Request a reconsideration

• Switch lenders

• Reduce the loan amount or cash-out

Ready to See Whether Your Equity Gets You a Good Deal?

Upload your Loan Estimate to Fincast.

Our platform benchmarks your offer based on your true equity and LTV, exposing hidden fees and overpriced loans — with no extra credit pull, no spam, and no sales calls.