Can You Refinance with No Equity?

If you’re looking to refinance your mortgage, you’ll find that most lenders want to see at least some equity in your home before approving a new loan. But can you refinance a mortgage with no equity?  

While you’re certain to encounter roadblocks while refinancing a traditional loan, some government-backed loans — like FHA, VA, or USDA streamline refinancing — may allow you to refinance even if you don’t currently have much equity. 

Be aware that these options are limited and depend on eligibility. But they may offer solutions for homeowners looking to refinance a loan while sitting on just a little equity. Let’s look at your options. 

Key takeaways  

• Most traditional refinance options require at least 20% home equity, but some government-backed programs offer exceptions for eligible borrowers. 
• FHA, VA, and USDA streamline refinance programs do not have minimum equity requirements, allowing homeowners with little or no equity to lower their interest rates or monthly payments. 
• Delaying your refinance and building more equity may help you secure better loan terms and long-term savings.  
• If you’re struggling to make your mortgage payments, contact your loan servicer as soon as possible about forbearance, loan modification, or other assistance. 

Can you refinance with no equity? 

In most cases, refinancing without equity isn’t an option. Lenders typically require you’ve built up 20% equity in your home for a conventional loan refinance, which safeguards the lender, improves your odds of approval, and helps secure a competitive interest rate. 

But while a traditional refinance may not be possible, certain government-based programs sometimes offer exceptions. FHA, VA, and USDA streamline refinance programs are designed to help eligible borrowers lower their monthly payments or interest rates — even if you have little to no equity. 

As many homeowners learn, building equity takes time — sometimes several years of consistent mortgage payments and home value appreciation before you reach that all-important 20% mark. But if you qualify for an FHA, VA, or USDA refinance program, you may not need to wait as long. Just be sure you understand how refinancing works and are aware that these options come with specific requirements that may not be available to everyone. 

Ways to refinance with little or no equity 

If you currently have an FHA, VA, or USDA home loan, the following options may be available for you if you want to refinance your loan with little to no equity in your home: 

1. FHA refinancing

The FHA Streamline Refinance program is available only to homeowners with existing FHA loans. It’s designed to make refinancing easier by reducing paperwork, skipping the home appraisal (in some cases), and not requiring a minimum amount of equity. 

To qualify, your current loan must be FHA-insured, your mortgage must be current, and the refinance must result in a tangible benefit such as a lower monthly payment or interest rate. Keep in mind that you can’t use this program to cash out equity, and closing costs will still apply. 

2. VA loan refinancing

The VA Interest Rate Reduction Refinance Loan (IRRRL) allows eligible veterans, active-duty service members, and surviving spouses to refinance an existing VA loan with few requirements. 

Like the FHA option, the VA streamline program doesn’t require a new appraisal or equity minimum, and it’s often faster and less expensive than a conventional refinance. To qualify, your original loan must be a VA-backed loan, and you must also demonstrate a clear financial benefit from refinancing, such as a lower rate or reduced payment. 

3. USDA loan refinancing 

If you currently have a USDA loan, the USDA Streamlined Assist Refinance program may allow you to refinance without a home appraisal or equity requirement. 

To qualify, you must have a USDA Direct or Guaranteed loan, be current on payments for the past 12 months, and show that the refinance will lower your monthly payment. This option is only available for properties in USDA-eligible rural areas. 

Pros and cons to refinancing with no equity

Refinancing with little to no equity may offer financial relief, but it may involve some tradeoffs. Consider how your needs today balance with the financial needs you anticipate experiencing throughout the term of your loan. 

Here’s a look at the potential benefits and drawbacks: 

Pros 

• May lower your monthly mortgage payments 
• Could reduce your interest rate 
• Streamlined process with limited paperwork and no appraisal 
• Helps avoid default or foreclosure during tough financial times 

Cons 

• Fewer loan options compared to refinancing with equity  
• Limited to existing government-backed loans  
• Not all borrowers will qualify, even if you have a government loan 

Alternatives to refinancing with no equity 

When you can’t refinance a mortgage with no equity, the best move is usually to wait. Equity builds over time as you make mortgage payments and your home value increases. Holding off until you’ve reached at least 10% to 20% equity can open up more refinancing opportunities, including cash-out refinancing. 

In the meantime, look for ways to reduce expenses elsewhere in your monthly budget. Small cuts — canceling unused subscriptions or negotiating other bills and payments — can add up and help you stay financially on track. 

If you’re struggling to make mortgage payments and can’t wait, talk with your loan servicer. Your current lender may offer forbearance, a loan modification, or other assistance that could provide relief. In some cases, downsizing to a smaller, more affordable home might be a smart long-term solution. 

Learn more with AmeriSave 

Should you refinance now or later? If you have little to no equity, you may be able to refinance certain government-backed loans. For most homeowners, the best move is to wait a little longer and continue to build equity until you reach lender requirements.  

AmeriSave provides AI tools, resources, and personalized support to help you better understand your mortgage options and when you qualify for a refinance. Are you ready to explore what’s possible? Get your custom quote today to discover what you might save. 

Frequently asked questions 

How much home equity do you need to refinance? 

For most conventional loans, lenders prefer that you have at least 20% equity in your home before refinancing. This helps lower your loan-to-value (LTV) ratio and qualify for better rates and terms, which is typically the goal of refinancing a home. Some loan programs may allow refinancing with as little as 5% to 10% equity, depending on your credit and overall financial profile.  

Can you refinance with no home equity?

In most cases, you can’t refinance a traditional mortgage without equity. However, certain government-backed programs — like FHA, VA, or USDA streamline refinancing — may allow you to refinance with little or no equity if you meet the loan criteria. These programs are designed to help eligible borrowers reduce their interest rates or monthly payments without the usual equity requirements.