How Much Equity Do I Need for a Cash-Out Refinance in Michigan?
If you’re a Michigan homeowner thinking about tapping into your home equity, one of the first questions you’re probably asking is:
“How much equity do I actually need to qualify for a cash-out refinance?”
The answer depends on the type of loan you’re using — but in most cases, you’ll need to keep at least 20% equity in your home after the refinance.
Let’s break that down in simple terms.
What Is Equity?
Equity is the difference between what your home is worth and what you still owe on your mortgage.
Example:
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Home value: $400,000
-
Mortgage balance: $250,000
-
Equity: $150,000
That $150,000 represents your ownership stake in the property.
But here’s the key:
You usually cannot borrow 100% of that equity.
Most Conventional Loans Require 20% Equity Remaining
With a conventional cash-out refinance backed by Fannie Mae or Freddie Mac, most lenders allow you to borrow up to:
80% of your home’s appraised value.
That means you must leave 20% equity in the home.
Example Scenario
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Home value: $400,000
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Maximum loan (80%): $320,000
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Current mortgage: $250,000
-
Maximum potential cash (before costs): ~$70,000
You’re required to maintain a 20% ownership position after the refinance.
VA and FHA Cash-Out Refinance Equity Requirements
If you qualify for a VA loan, the rules are different.
VA Cash-Out Refinance
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Often allows borrowing up to 100% of the home’s value
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No private mortgage insurance (PMI)
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Must meet VA eligibility and lender overlays
This can significantly increase accessible equity for eligible veterans.
FHA Cash-Out Refinance
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Typically allows up to 80% loan-to-value
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Requires mortgage insurance premiums (MIP)
Each loan type has different pros and cons — which is why it’s important to review your specific scenario.
Do Home Values in Michigan Affect This?
Absolutely.
Equity is based on current appraised value, not what you originally paid for the home.
What If I Don’t Have 20% Equity?
If your equity position is below 20%, you may have options:
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Wait for additional appreciation
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Consider a HELOC instead
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Explore non-QM cash-out programs (depending on qualifications)
The strategy depends on your goals and timeline.
Why Lenders Require Equity
Equity protects both you and the lender.
It reduces:
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Risk of foreclosure
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Risk of negative equity
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Financial instability if property values shift
From a planning standpoint, maintaining strong equity also preserves long-term wealth building.
How to Estimate Your Equity
You can start by:
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Checking recent comparable home sales in your neighborhood
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Reviewing online value estimates (Zillow, Redfin, Realtor.com)
Should You Use Your Equity?
Just because you can access equity doesn’t always mean you should.
Smart uses of cash-out refinances often include:
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Home improvements that increase value
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Consolidating high-interest debt
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Investment property down payments
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Financial restructuring
It’s less ideal for:
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Ongoing lifestyle spending
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Short-term cash flow fixes without a plan
The right move depends on your full financial picture.
The Bottom Line
In most cases, you’ll need at least 20% equity remaining in your home to qualify for a conventional cash-out refinance in Michigan.
But loan type, credit profile, and property value all play a role.
If you’re not sure where you stand, the next step is simple:
Let’s run the numbers.
Ready to explore if a Cash-Out Refinance makes sense for you?
JPAL Mortgage is here to help Michigan families refinance homes together with clarity, confidence, and the best possible loan options.
Let’s Connect!
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