What Is Home Equity? How It Impacts Your Ability to Refinance

Home equity is one of the most important — yet most misunderstood — factors in refinancing. Whether you’re looking to lower your rate, switch loan types, remove PMI, or tap equity with a cash-out refinance, your home equity determines what’s possible and what isn’t.

The short version:

Home equity is the portion of your home you truly own. More equity = better refinance options, better rates, and more negotiating power.

But how much equity do you actually have? And how does it affect your refinance approval, pricing, and savings?

This guide explains what home equity is, how to calculate it, how lenders use it, how much you need to refinance, and how Fincast can help you compare real refinance offers based on your home’s equity — without extra credit pulls.

Key Takeaways

• Home equity = Home value – Loan balance

• Lenders use equity to determine your Loan-to-Value (LTV) ratio.

• More equity lowers your interest rate, improves approval odds, and helps you remove PMI.

• Most conventional refinances work best at 80% LTV or lower (20% equity).

• Cash-out refinances typically require 20–25% equity after closing.

💡 Pro Tip: Upload your Loan Estimate to Fincast. The platform benchmarks your offer based on your true equity and LTV — no extra credit pulls, no spam.

What Is Home Equity?

Home equity is the difference between what your home is worth and how much you owe on your mortgage.

Home Equity Formula

Home Equity = Market Value – Loan Balance

Example

• Home value: $550,000

• Loan balance: $400,000

550,000 – 400,000 = $150,000 in equity

This means you own ~27% of your home.

Why Home Equity Matters for Refinancing

Your equity determines:

• Whether you can refinance

• What loan types do you qualify for

• Your new mortgage rate

• Whether you need PMI

• How much cash can you pull out

• Whether you get an appraisal waiver

• How strict will it be

In every refinance, lenders evaluate equity through your Loan-to-Value (LTV) ratio.

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

Instead of looking at your dollar-equity amount, lenders convert it into an LTV percentage.

LTV Formula

LTV = (Loan Amount ÷ Home Value) × 100

Example

Loan: $375,000

Value: $500,000

LTV = 75%

Equity = 25%

Lower LTV = more equity = lower risk.

How Much Equity You Need to Refinance (2025 Requirements)

Requirements vary by loan type and refinance goal.

Rate-and-Term Refinance

Typically requires:

• Strong approval at 95% LTV or lower

• Best pricing at 80% LTV or below

Even with little equity, a rate-and-term refinance is often possible.

Cash-Out Refinance

More equity is required.

Typical limits:

• 80% LTV for single-family primary homes

• 75% LTV for 2–4 unit properties

• 70–75% LTV for investment properties

You must leave 20–25% equity after cash-out.

FHA Refinance

• Rate-and-term: Up to 97.75% LTV

• Cash-out: Up to 80% LTV

VA Refinance

• IRRRL (streamline): No equity requirement

• Cash-out: Often capped at 90% LTV, but varies by lender

Jumbo Refinance

Strictest equity requirements:

• Most jumbo lenders require 20–30% equity

How Home Equity Affects Your Refinance Rate

Lenders give better pricing to borrowers with more equity because equity reduces risk.

Typical Rate Improvements by LTV

• 95% LTV → Highest pricing

• 90% LTV → Slight improvement

• 80% LTV → Major improvement

• 70–75% LTV → Excellent pricing

• <60% LTV → Often the lowest rates available

Even a 0.125–0.25% rate improvement can save thousands over the life of your loan.

How Home Equity Affects PMI (Mortgage Insurance)

Your ability to remove PMI is one of the biggest reasons homeowners refinance.

If LTV is above 80%

PMI is required for most conventional refinances.

If LTV is 80% or below

You can:

• Remove PMI

• Reduce your payment

• Improve your break-even point

• Qualify for better rate tiers

This is one of the strongest financial reasons to refinance once your equity crosses the 20% threshold.

How to Calculate Your Home Equity (Step-by-Step)

If you’re preparing to refinance, calculating equity ahead of time helps you know where you stand.

Step 1: Estimate your home’s value

Options include:

• Online estimates (rough starting point)

• Recent comparable sales

• Realtor comparative market analysis (CMA)

• Certified appraisal (lender will order if needed)

Step 2: Check your loan payoff amount

This is slightly higher than your loan balance due to interest and fees.

Step 3: Subtract to find equity

Home Equity = Value – Payoff Amount

Example

Home value: $450,000

Payoff: $310,000

Equity = $140,000

Step 4: Convert to LTV

LTV = Loan ÷ Value × 100

310,000 ÷ 450,000 = 68.9% LTV

This is excellent for refinancing.

How to Increase Your Equity Before Refinancing

If your equity is borderline, you may have options.

1. Pay Down Your Loan

Even $3,000–$8,000 can move you into a better pricing tier.

2. Make Minor Home Improvements

Small updates that improve appraisal value:

• Landscaping

• Paint

• Lighting

• Minor kitchen/bath updates

3. Provide Comparable Sales Ahead of Appraisal

If homes nearby sold higher, share those comps.

4. Avoid Cash-Out If You’re Near 80% LTV

Cash-out increases your loan amount — and your LTV.

How Equity Affects Appraisal Waivers

If you have strong equity, you may receive a Property Inspection Waiver (PIW).

Benefits:

• Saves $500–$900

• Cuts 1–2 weeks off the timeline

• Removes the risk of a low appraisal

Waivers are most common when equity is 30% or more.

Why Home Equity Makes Lender Comparisons Hard

Each lender uses slightly different:

• LTV tiers

• Equity-based price adjustments

• Cash-out restrictions

• PMI rules

• Appraisal waiver criteria

This means one lender may penalize an 82% LTV significantly, while another prices it competitively.

This is exactly why the Fincast platform gives borrowers an edge.

How Fincast Helps You Get the Best Refinance for Your Equity

Fincast benchmarks your refinance offer — including equity and LTV — so lenders compete more aggressively to win your business.

Here’s how it works:

1. Upload your Loan Estimate

No credit pull.

No new application.

2. Fincast analyzes your offer

The platform evaluates:

• Rate

• Lender fees

• Points

• Credits

• Cash-to-close

• LTV-based pricing adjustments

3. Vetted lenders anonymously compete to beat your deal

Because your identity stays hidden, you avoid:

• Spam

• Calls

• Pressure

You just see better pricing.

4. You choose the best offer

If your lender is competitive, Fincast confirms it.

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

FAQs: Home Equity & Refinancing

1. How much equity do I need to refinance?

Usually 5–20%, depending on the loan type.

2. How much equity do I need for cash-out?

You must typically leave 20–25% equity after refinacing.

3. Does more equity always mean a better rate?

Generally yes — lower LTV leads to lower pricing adjustments.

4. Can I refinance with very little equity?

Yes for some programs like FHA or certain conventional refis, but pricing will be higher.

5. How do I know if my equity-based pricing is competitive?

Upload your Loan Estimate to Fincast to benchmark it.

Bottom Line

Home equity affects every part of your refinance: approval, rate, PMI removal, cash-out limits, and your long-term savings. The more equity you have, the more refinancing options — and negotiating power — you gain.

But every lender treats equity and LTV differently, so comparing offers is essential to getting the best deal.

Action Checklist

☑️ Estimate your home value

☑️ Identify your exact equity and LTV

☑️ Determine your refinance goals

☑️ Get your Loan Estimate

☑️ Upload your LE to Fincast

☑️ Compare lenders anonymously

☑️ Choose the refinance that maximizes your savings

👉 Ready to see how your home equity affects your refinance rate and costs?

Upload your Loan Estimate to Fincast and let vetted lenders compete — anonymously — to give you the best pricing. No extra credit pulls. No spam. Only savings.