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Learning CenterCan you refinance with less than 20% equity?
Yes. Conventional and FHA rate-and-term refinances often allow loan-to-value ratios well above 80%, and FHA Streamline or VA IRRRL refinances may not need an appraisal at all. The tradeoffs: mortgage insurance usually applies, and cash-out refinances generally require about 20% equity left in the home.
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Can I refinance with less than 20% equity?
Yes. Twenty percent equity is a pricing and mortgage-insurance threshold, not a refinance requirement. What matters is your loan-to-value ratio (LTV): your loan balance divided by your home's current value.
Illustrative example
Home value $350,000; balance $300,000 → LTV ≈ 86% (14% equity). Illustrative only, not a commitment to lend.
| Refinance type | Typical maximum LTV |
|---|---|
| Conventional rate-and-term | Up to about 95–97% |
| FHA rate-and-term | Up to about 97.75% |
| FHA Streamline / VA IRRRL | Often no appraisal-based LTV test |
| Conventional cash-out | About 80% |
| FHA cash-out | About 80% |
| VA cash-out | Up to about 90–100%, lender dependent |
General program guidelines; limits change and vary by lender, occupancy, and credit.
Will I pay PMI if I refinance with less than 20% equity?
On a conventional refinance above 80% LTV, yes—private mortgage insurance applies. The cost depends on LTV and credit score, and it can be removed later as equity grows. FHA refinances carry MIP regardless of equity, though FHA-to-FHA streamlines may qualify for reduced upfront premiums.
Sometimes worth it
A lower rate can save more than the new PMI costs—especially if you're leaving FHA's lifetime MIP for removable PMI.
Sometimes not
If you currently have no mortgage insurance, adding PMI can wipe out the rate savings. Run it both ways.
What are FHA Streamline and VA IRRRL refinances?
If you already have a government-backed loan, streamline options can be the easiest path with low equity:
- FHA Streamline: refinances an existing FHA loan into a new FHA loan with reduced documentation and often no appraisal. It must provide a "net tangible benefit," such as a lower combined rate and MIP.
- VA IRRRL (Interest Rate Reduction Refinance Loan): refinances an existing VA loan to a lower rate or from an ARM to a fixed, typically without an appraisal or income verification. Learn more on the VA IRRRL page.
Neither allows meaningful cash out, and both have seasoning rules (minimum time and payments on the current loan).
Can I take cash out with less than 20% equity?
Generally not with conventional or FHA cash-out, which usually cap around 80% LTV. If you need funds for a project but have limited equity, options include:
- VA cash-out for eligible veterans, which may allow higher LTVs.
- A HELOC or home equity loan, which keeps your first mortgage intact and may allow combined LTVs above 80% with some lenders.
- Waiting. Paying down principal and rising values may get you to 80% sooner than you think.
How can I improve a low-equity refinance?
- Check your home's value realistically—an appraisal below expectations raises LTV.
- Consider paying down the balance slightly to cross an LTV pricing tier (e.g., 95% → 90%).
- Don't roll in more costs than needed; it raises LTV.
- Protect your credit score in the months before applying.
Compare options in the refinance guide and test the math in the refinance calculator. See also what refinancing costs.
What does a low-equity refinance look like in practice?
Scenario A: FHA to conventional
Value $350,000, balance $300,000 (86% LTV). Moving from FHA with lifetime MIP to conventional with removable PMI lowers the combined payment, and PMI can be dropped once the loan reaches about 78–80% LTV.
Scenario B: VA IRRRL
Value unknown, balance $280,000 on a VA loan. An IRRRL to a lower rate may proceed without an appraisal, so equity isn't the deciding factor—net benefit and seasoning are.
Illustrative only, not a commitment to lend. Mortgage insurance, eligibility, and costs vary by borrower and program.
Documents to have ready
- Most recent mortgage statement and homeowners insurance declaration page
- Recent pay stubs and W-2s (not always needed for streamlines)
- Two months of bank statements
- HOA contact information if applicable
Ask a loan officer to check your LTV before you apply—a quick value estimate can tell you which path makes sense.
Frequently asked questions
Can you refinance with less than 20% equity?
Yes. Conventional and FHA rate-and-term refinances allow high loan-to-value ratios, and streamline programs often skip the appraisal. Mortgage insurance may apply.
Can I refinance with 5% equity?
Often, through conventional or FHA rate-and-term options, or an FHA Streamline or VA IRRRL if you already have those loans.
Will I have to pay PMI again?
On a conventional refinance above 80% LTV, yes, though it can be removed later. FHA refinances carry MIP.
Can I do a cash-out refinance with less than 20% equity?
Usually not with conventional or FHA, which cap near 80% LTV. VA cash-out or a HELOC may be alternatives.
Do streamline refinances need an appraisal?
FHA Streamline and VA IRRRL often do not require one, which helps when equity is limited.
Educational answers only—not a loan offer or commitment to lend. Examples are illustrative only, not a commitment to lend.
See which refinance fits your equity
We will check your LTV, program options, and whether mortgage insurance changes the math. Call a loan officer at (480) 233-7897.