How Much Equity Do You Need to Refinance Your Mortgage?

Refinancing your mortgage can lower your payments and free up space in your monthly budget. But if you don’t have enough equity in your home, you won’t be able to qualify for a refinance loan.

How much equity do you need to refinance, and does it matter what type of loan you have?

Refinance Program	Existing Loan Type	Minimum Equity to Refinance
Conventional	Conventional	3% to 5%
Conventional	Other	Typically 5% to 20% (depends on the lender and PMI requirements)
FHA	FHA	Zero/negative equity OK
FHA	Other	2.25%
VA	VA	Zero/negative equity OK
VA	Other	0–10% depending on lender
USDA	USDA	Zero/negative equity OK
USDA	Other	Ineligible: only USDA loans can be refinanced using USDA

A Quick Refresher on Loan-to-Value Ratio

A refinance loan is essentially a new mortgage that replaces your old one. So, many refinance requirements are the same as when you initially took out the loan. One of those requirements — as it pertains to equity — is the loan-to-value (LTV) ratio.

LTV is the percentage of your home’s value that you’re financing, calculated by dividing your mortgage balance by your home’s value.

So, if you have 15% equity in your home when it comes time to refinance, your LTV would be 85% — making you eligible for most refinance programs. Keep in mind that specific requirements can vary by lender.

How Much Equity Do You Need to Refinance a Conventional Loan?

It’s possible to refinance a conventional loan with as little as 3% equity. On a home worth $300,000, that means you could refinance a mortgage balance of up to $291,000.

To qualify for a conventional 97% LTV refi, your existing mortgage must be owned or securitized by Fannie Mae or Freddie Mac. Homeowners who don’t meet that requirement can still qualify for a conventional refinance with just 5% equity.

On a $300,000 home, a 95% LTV refinance would allow for a loan balance of up to $285,000.

In addition to equity requirements, conventional refinances require a minimum credit score. Refi.com requires a 620 FICO score for conventional rate-and-term refinances.

Refinancing With Private Mortgage Insurance

Conventional guidelines require all borrowers with less than 20% equity to pay for private mortgage insurance (PMI). Rates vary based on your credit score and equity level — and for borrowers with lower credit and little equity, the premium can add substantially to your monthly payment.

For example, a borrower with 10% equity and a 740 credit score might pay an annual PMI rate of around 0.38% on a 30-year loan — roughly $95 per month on a $300,000 mortgage.

By contrast, a borrower with just 3% equity and a 640 credit score could pay a PMI rate of 1.65% — around $400 per month on that same $300,000 loan.

Keep in mind that PMI rates vary by provider and are influenced by your individual credit and equity profile.

If you have little equity, waiting until you hit 20% to refinance may not make sense. But improving your credit score before applying could meaningfully lower your PMI rate and overall payment.

Another option, if you have funds available, is a cash-in refinance — where you contribute extra cash at closing to reduce your loan balance and boost your equity. This is commonly used to eliminate PMI for borrowers nearing the 20% equity threshold.

Equity Requirements for Government-Backed Refinance Options

Conventional loans are the most common type of residential mortgage, but there are other options. Common alternatives include refinances backed by the FHA, VA, and USDA.

These government-backed refinance options all have lower equity requirements and may even allow you to refinance regardless of your home’s current value or mortgage balance.

Loan Program	Existing Loan Type	Minimum Equity to Refinance
FHA	FHA	Zero/negative equity OK
FHA	Other	2.25%
VA	VA	Zero/negative equity OK
VA	Other	0–10% depending on lender
USDA	USDA	Zero/negative equity OK
USDA	Other	Ineligible: only USDA loans can be refinanced using USDA.

*Current FHA borrowers may be eligible for an FHA streamline refinance with no minimum equity requirement.

FHA Refinances

The Federal Housing Administration offers six kinds of refinances, with their rate-and-term refi open to homeowners with any type of existing loan. With an FHA rate-and-term refinance, you can borrow up to 97.75% of your home’s value — meaning you need just 2.25% equity.

On a property worth $300,000, you could get a standard FHA refi for up to $293,250 — $2,250 more than a conventional loan. In many low-equity situations, this could mean the difference between qualifying and not.

Current FHA borrowers may also be eligible for the low-doc FHA streamline refinance program, which lets you reduce your monthly payment and interest rate without an appraisal — meaning you can potentially refinance with no equity, or even if you owe more than the home is worth.

Note that FHA guidelines set a minimum credit score, but most lenders — including Refi.com — require a higher score. Refi.com requires a minimum 620 FICO score for FHA rate-and-term refinances.

VA Refinances

Homeowners who are active-duty service members or honorably discharged veterans may qualify for a VA refinance regardless of how little equity they’ve built up.

The VA also offers a streamlined refinance option (the IRRRL) for existing VA loan holders. Eligible borrowers with other loan types may also be able to refinance through a VA lender for up to 100% of the home’s appraised value via a VA cash-out refinance.

While the VA doesn’t set a minimum credit score, individual lenders do. Refi.com requires a minimum 620 FICO score for VA refinances.

USDA Refinances

USDA refi loans allow you to refinance your full mortgage balance regardless of built-up equity. The most popular option is the USDA Streamlined-Assist, which is straightforward and requires minimal paperwork.

One important limitation: USDA refinances are only available to borrowers who currently have a USDA loan. You cannot use the USDA program to refinance out of a conventional, FHA, or VA mortgage.

The USDA doesn’t publish a hard credit score minimum, but lenders typically require one. Refi.com requires a minimum 620 FICO score for USDA refinances.

Closing Costs May Increase the Equity You Need to Refinance

Refinancing means paying closing costs, much like when you first took out your mortgage. Conventional closing costs generally run from 2% to 4% of your loan balance. Some programs carry additional upfront expenses, such as the FHA upfront mortgage insurance premium or the VA funding fee.

For example, on a $250,000 conventional refinance, you could anticipate closing costs ranging from $5,000 to $10,000.

If you don’t have the cash to pay upfront, you may be able to roll closing costs into your loan balance — but doing so requires additional equity to stay within program LTV limits.

For example, rolling $7,500 in closing costs (3%) into a $250,000 loan would bring your balance to $257,500, requiring the property to appraise at least $265,000. That translates to a current equity requirement of just over 6%.

Lender-Paid Closing Costs

If you don’t have enough cash or equity to cover closing costs, another option is to ask your lender to cover some or all of those expenses through lender credits.

Lender credits work as the inverse of mortgage discount points — they help offset your closing costs with little or no out-of-pocket contribution in exchange for a slightly higher interest rate on the loan.

While you may not land the absolute lowest rate, lender credits can still be a worthwhile tradeoff if they allow you to complete a refinance that meaningfully reduces your monthly payment.

Don’t Forget About Home Appreciation

Your home’s value likely isn’t the same as it was when you took out your mortgage. Homes in the U.S. appreciate, on average, between 3% and 5% annually — though this varies by location and market conditions. That appreciation translates directly into equity you didn’t have to pay for.

So, if it’s been a year or more since you took out your mortgage, you may have more equity than you realize.

Using our $300,000 home example: if the property appreciated 3.5% annually for two years, it could now be worth over $321,000 — that’s more than $21,000 in equity from appreciation alone, or roughly 6.5% of the home’s current value. Add in your down payment and the principal you’ve paid down each month, and your equity position may be stronger than expected.

Unless you’re doing a government-backed streamline refinance, you’ll need a home appraisal to determine your home’s current value — and that’s when you’ll find out exactly how much it’s appreciated.

It’s worth noting that the 3–5% figure is based on long-term historical trends and isn’t guaranteed. Market conditions vary, and two years into a mortgage doesn’t automatically mean that much appreciation.

Can I Refinance If I’m Underwater on My Mortgage?

Three government programs allow underwater refinances:

1. FHA Streamline
2. VA Streamline (IRRRL)
3. USDA Streamlined-Assist

In all cases, your current loan must match the program type — for example, FHA to FHA. No appraisal is required, which eliminates the equity requirement altogether.

There were previously two conventional programs that allowed refinancing even when you owed more than the home was worth:

• Fannie Mae High LTV Refinance Option (HIRO)
• Freddie Mac Enhanced Relief Refinance Mortgages (FMERR)

Both were paused as rising home values during and after the pandemic reduced demand for high-LTV refinances.

There are currently no conventional refinance options for borrowers with underwater mortgages — you must have at least 3% equity to qualify for a conventional refinance today. If property values were to decline broadly and demand increased, it’s possible these programs could be revived or new alternatives introduced.

How Much Equity Do You Need for a Cash-Out Refinance?

So far, we’ve focused on the standard rate-and-term refinance, which allows you to adjust your interest rate and loan term. But homeowners with more equity may also want to know what it takes to do a cash-out refinance.

Both conventional and FHA lenders require a minimum of 20% equity remaining after you withdraw cash. The USDA does not currently offer a cash-out refinance option.

For conventional cash-out refinances, Refi.com requires a minimum 660 FICO score. For FHA cash-out refinances, Refi.com requires a minimum 620 FICO score.

VA Cash-Out Refinances

Eligible VA borrowers may be able to withdraw more cash with less equity. Current VA guidelines allow lenders to approve cash-out refinances for up to 100% of a property’s appraised value, though some lenders cap their maximum LTV at 90%.

In some cases, eligible VA borrowers with low equity may be able to take out cash and refinance in situations where other programs would deny even a simple rate-and-term refi.

Advantages of Refinancing With Little or No Equity

Refinancing with little or no equity can still meaningfully reduce your expenses and free up room in your monthly budget. Key benefits include the ability to:

• Lower your interest rate
• Extend the term of your loan
• Switch from a fixed to an adjustable rate — or vice versa
• Remove a co-borrower or co-signer from your mortgage

Disadvantages of Refinancing With Little or No Equity

That said, low-equity refinancing comes with tradeoffs compared to refinancing with a stronger equity position:

• Closing costs typically require cash on hand or additional equity
• It could take years to recoup the refinancing costs
• You’ll likely be making mortgage payments for longer
• Lifetime interest costs may increase even with a lower rate

Low Equity Refinance Alternatives

Not quite enough equity to qualify? Here are a few alternatives worth considering.

Cash-In Refinance

If you’re just under the equity threshold, a cash-in refinance may bridge the gap. You contribute extra cash at closing to reduce your loan balance and increase your equity position.

While it may feel counterintuitive to bring cash to a refinance, you’re not losing that money — it converts directly into home equity that you can tap in the future.

Streamline Refinances

All three government-backed mortgage programs offer low-doc streamline refinances. In most cases, these loans don’t require a full credit review, income verification, or a new appraisal.

Because your refi is based on the original value of your home — not its current market value — you may be able to complete a streamline refinance even if local prices have dropped and you’re underwater.

The limitation: streamline programs are only available to current program borrowers. Conventional loan holders cannot use a government-backed streamline refinance, and there are currently no low-doc conventional alternatives.

Reduce Expenses Elsewhere

If you don’t have enough equity to refinance, can’t contribute cash at closing, and aren’t eligible for a streamline refi, your best path forward may be to reduce expenses elsewhere while continuing to pay down your loan. Making extra principal payments — even small ones — can help you reach the required equity threshold faster.

Refinance Your Home With Little or No Equity

Conventional refinances are available for most borrowers with as little as 3% to 5% equity, while FHA rate-and-term refis require just 2.25%. If you currently have a government-backed mortgage, you may also qualify for a streamline refinance regardless of your equity position.

Not sure where you stand? Start your refinance application with Refi.com and find out what you qualify for in minutes — no obligation, no commitment, and no impact to your credit score to get started.