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If you’re thinking about tapping into your home’s value with a cash-out refinance, one of the first questions you’ll need to answer is: How much equity do I need to qualify?
While cash-out refinancing can be a smart move to consolidate debt, fund renovations, or cover big expenses, lenders have strict requirements around equity, loan-to-value (LTV), and credit score.
In this guide, we’ll break down exactly how much equity you need, how it’s calculated, and how to maximize your cash-out potential in 2025.
🧠 What Is Home Equity?
Your home equity is the portion of your home that you truly “own.” It’s the difference between your property’s current market value and the amount you still owe on your mortgage.
Formula:
Home Equity = Current Home Value – Mortgage Balance
For example:
- Home Value: $400,000
- Mortgage Balance: $250,000
- Equity: $150,000
This $150,000 is the value you can potentially tap into—with some limits.
💵 How Much Equity Do You Need for a Cash-Out Refinance?
Most lenders require you to leave at least 20% equity in your home after the refinance. This means you can borrow up to 80% of your home’s appraised value (sometimes more with specialized loans).
| Loan Type | Max Loan-to-Value (LTV) | Min Equity Required |
|---|---|---|
| Conventional (Fannie/Freddie) | 80% | 20% |
| FHA Cash-Out | 80% | 20% |
| VA Cash-Out (for eligible veterans) | Up to 100% | 0% |
| Non-QM / Bank Statement Loan | 75–85% (varies) | 15–25% |
👉 Explore Cash-Out Refinance options for different borrower types and loan programs.
📊 Real-World Example
Let’s say your home appraises for $500,000 and you owe $300,000 on your mortgage.
- Max loan at 80% LTV = $400,000
- Cash-out potential = $400,000 (new loan) – $300,000 (old loan) = $100,000
You’d need to qualify for a $400,000 mortgage and have good credit/income to secure the deal.
📋 Other Key Requirements Beyond Equity
While home equity is critical, it’s not the only factor lenders consider. You’ll also need to meet:
| Criteria | Typical Standards |
|---|---|
| Credit Score | 620+ (680+ for best terms) |
| Debt-to-Income (DTI) | ≤ 45–50% for conventional loans |
| Loan Purpose | Must be for eligible use (no investment speculation) |
| Occupancy Type | Primary residence (different rules for second homes or rentals) |
| Seasoning | You usually must own the home 6–12 months before cashing out |
🔗 Don’t fit traditional guidelines? Learn about Bank Statement Loans for self-employed borrowers.
🏠 How to Calculate Your Available Equity for a Cash-Out Refi
Here’s a simple 3-step method:
- Get a home appraisal (or estimate using online tools).
- Multiply by your lender’s max LTV (e.g., 80%).
- Subtract your current mortgage balance.
Example:
- Appraised Value: $450,000
- Max LTV: 80% = $360,000
- Mortgage Balance: $280,000
- Cash Available: $80,000 (minus closing costs)
Use our Affordability Calculator to model your refinance scenario.
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
💡 How to Boost Your Equity Before Applying
If you’re not quite at 20% equity yet, here are smart ways to build it up:
- Make extra principal payments to reduce your mortgage balance faster.
- Renovate strategically (kitchens and bathrooms offer the best ROI).
- Wait for appreciation in hot markets to increase your home’s value.
- Avoid mortgage forbearance or delinquency—these can delay your eligibility for refinancing.
🧾 FAQs
Can I do a cash-out refinance with less than 20% equity?
It’s difficult. Most conventional lenders won’t allow it, but VA loans and some non-QM programs may offer higher LTV options.
Will I need mortgage insurance?
If your new loan exceeds 80% of the home’s value, PMI (Private Mortgage Insurance) may apply—unless you qualify for a VA loan.
How much equity should I leave in my home after refinancing?
Many experts recommend leaving at least 20% equity for financial safety and to avoid PMI.
🔗 Related Resources
- Cash-Out Refinance Overview
- Bank Statement Loans for Self-Employed Homeowners
- Cash-Out vs. HELOC Comparison
- Loan Comparison Calculator
📣 Final Thoughts
Knowing how much equity you need is the first step to deciding if a cash-out refinance makes sense. In most cases, having at least 20% equity will put you in a strong position to qualify—and unlock the financial flexibility your home can offer.
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
