How Much Equity Do You Need To Refinance?

Sep 04, 2025 Buying A Home

Learn how much equity is needed to refinance, explore loan options, and familiarize yourself with key requirements to make the best mortgage refinancing decision.

Are you thinking about refinancing your mortgage? Whether you’re looking to lower your monthly payment, lock in a better rate, or use your home’s equity, refinancing simply means replacing your existing loan with a new one. It can be a smart way to save money or reach other financial goals, but it’s important to understand how it works before deciding if it’s right for you.

This guide covers everything you need to know about refinancing – including qualification requirements, equity considerations, the potential impact on your credit score, and the pros and cons to help you make a confident decision.

How Much Equity Do You Need To Refinance?

Your home equity is simply the difference between your home’s value and what you still owe on your mortgage. One of the most common questions homeowners ask is, “How much equity do I need to refinance?”

For most conventional refinances, lenders usually want you to have at least 20% equity in your home. That means your loan-to-value ratio (LTV) – the amount you owe compared to your home’s value – should be 80% or less. For example, if your home is worth $300,000 and your mortgage balance is $240,000, you have $60,000 in equity, or 20%.

While 20% equity is the standard, there are exceptions. Some lenders may work with you if you have less. For instance, if your mortgage is backed by the Federal Housing Administration (FHA), you may qualify for an FHA Streamline Refinance without needing an appraisal or meeting a specific requirement.

Veterans also have options with no equity requirement through the VA Interest Rate Reduction Refinance Loan (IRRRL). Similarly, the Home Affordable Refinance Program (HARP) helps homeowners who owe more than their home’s value.

Other paths include:

Keep in mind, your goals matter too. If you’re looking at a cash-out refinance, lenders will often want you to have more than 20% equity left in your home after the refinance.

Bottom line? For the best rates and options, it’s usually smart to wait until you’ve built at least 20% equity. But if you’re not there yet, don’t worry – there are alternatives. Contact one of our mortgage experts and they’ll help guide you to the refinance option that best fits your financial situation.

The Pros & Cons Of Refinancing Your Mortgage

Before moving forward, it’s helpful to weigh the pros and cons of refinancing so you know what to expect.

Pros Of Refinancing

Cons Of Refinancing

Refinancing can be a smart way to save money, pay down debt faster, or access your home’s equity – but it’s not the right fit for everyone. Think about what matters most for your budget and long-term plans.

More Factors To Consider Before Refinancing

Along with the pros and cons, there are other factors to consider before you decide to refinance your mortgage:

As mentioned earlier, think about your current equity and how it’ll impact your refinancing options, as well as if you want to pull cash out of the refinance or not.

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Need To Turn Equity Into Cash?

You have options when it comes to accessing the equity in your home. Find out if a Cash-Out Refinance, Home Equity Loan, or HELOC will fit your needs.

How Much Income Do I Need To Refinance?

One of the most important factors in refinancing is your debt-to-income (DTI) ratio – the percentage of your monthly income that goes toward debt payments.

Most lenders want to see a DTI of 43% or lower, though some programs allow up to 50% if you have strong credit or other compensating factors. To qualify, your current loan should also be in good standing with no recent late payments.

Here’s how to calculate your DTI:

  1. Add up your required monthly debt payments (mortgage, credit cards, student loans, car loans, and any other loans in your name)
  2. Divide that number by your gross monthly income (income before taxes)
  3. Multiply the result by 100 to get your DTI ratio

Example: If your debts total $2,500 each month and your gross income is $6,000, your DTI is 41.6%.

For investment properties, requirements are often stricter – lenders may ask for a lower DTI, higher credit scores, and extra documentation. If you’re self-employed, you may need to provide additional documentation such as profit-and-loss statements and business tax returns to verify income.

If your DTI is too high, focus on paying down debt or increasing your income before applying to refinance. Doing so can improve your chances of approval and help you qualify for better loan terms.

When You Should Consider Refinancing

There are several circumstances where refinancing your mortgage might make sense:

Whenever your financial situation changes, it’s worth taking another look at your mortgage to see if refinancing could put you in a better position.

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Refinance Calculator

Unsure if refinancing your mortgage is right for you? Our free calculator will not only help see if you could save, but also how your payments might change.

Do I Need An Appraisal To Refinance?

In most cases, yes – a home appraisal is required when refinancing your mortgage. The good news is if your home’s value has gone up, the appraisal can work in your favor by helping you qualify for better loan terms or even removing Private Mortgage Insurance (PMI).

There are some exceptions. For example, FHA Streamline and VA refinance programs often don’t require an appraisal, and some lenders may waive it for borrowers who are considered low risk.

Does Refinancing Hurt Your Credit?

Refinancing will cause a temporary dip in your credit score. This happens for a couple of reasons:

  1. When lenders check your credit, it’s registered as a “hard inquiry,” which lowers your score.
  2. The new refinanced mortgage will appear as a new account on your credit report, replacing your previous one and resetting your credit history, which can also cause a temporary dip.

It’s important to note that a late or missed payments on your mortgage during the refinancing process can negatively impact your credit score and remain on your credit report for up to seven years.

The good news is that your score typically bounces back as you make on-time payments on your new loan. And in many instances, the short-term dip is worth it if refinancing helps you lower your monthly payment or secure a better interest rate.

Refinancing Options At A+FCU

Refinancing your mortgage is a big decision, and A+FCU is here to guide you every step of the way. We offer a variety of options designed to fit your needs, including low-rate 15- and 30-year fixed-rate, jumbo, and flexible adjustable-rate refinance options.

Our team will take the time to understand your goals – whether that’s lowering your monthly payment, paying off your home faster, or accessing equity – and help you choose the path that’s right for you.

Reach out and take the first step – contact A+FCU today to have one of our mortgage experts assist you.

Membership required. LTV = Loan to Value. Programs, rates, terms, and conditions are subject to change without notice. Normal lending criteria apply. All loans subject to credit approval. Rates are subject to credit score, loan-to-value matrix adjustments, and normal credit underwriting factors. Property must be located in Texas and primary owner-occupied single-family residence. Payments do not include amounts for taxes and insurance premiums. Actual payment obligation may be greater. Additional terms available. NMLS #405608.

 

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