There is no simple number for an equity percentage that will allow you to refinance but 20% is usually a good beginning. If your home is worth a million dollars and you have a $800,000 mortgage, you are in the game with a good chance to refinance your mortgage.
A spike in home sales and prices combined with a boom in low- and no-down payment mortgages a few years ago explains why so many new homeowners don’t have enough equity to refinance today. Lack of equity, and especially being “upside down” or “underwater,” is a significant barrier because lenders are naturally loath to lend more than the value of the collateral.
Yet while many homeowners clearly can or can’t refinance, others are uncertain as to whether they have enough equity to do so. Unfortunately, the only way to truly find out whether you’ll qualify is to submit an application and pay a parcel of upfront fees that can amount to hundreds of dollars.
First estimate your home’s value
One good strategy is to discuss your situation with a loan officer or mortgage broker and try to figure out how much your home is worth before you submit a loan application.
“I recommend that people try to get every bit of information they can to get a good accurate estimate before they write that check [because] if [the lender is] collecting an application fee and you are paying for an appraisal and the deal falls apart, that’s a pretty expensive lesson,” Metzler says.