Consumption and Real Estate
Why do you need equity in your home to refinance your mortgage?
Question : Why do you need equity in your home to refinance your mortgage?
I understand equity is value you have built up in your home by making loan payments but why is it required to refinance? Is it because lenders want to see you are in the process of paying off the loan instead of simply refinancing frequently?
Thanks
refinance your home
Best answer:
Answer by dreamgirl
They want your new loan to be less than what the property is worth in case they have to repo it.
Since mortgage companies have been burned by people with little to no equity (they tend to walk away when the value drops a little), they aren’t willing to take that risk anymore.
In general, if you do not own at least 20% of the CURRENT value of your home you are not going to have an easy time of refinancing. You will probably pay PMI or not be able to complete your transaction.
This ensures that you have ‘skin in the game’ and that your personal money is on the line.
good luck!