The Equity Standard

• Conventional mortgage lenders typically require that you have at least 20 percent equity in your home before they approve you for a mortgage loan. This number may seem arbitrary, but lenders say that borrowers are more likely to make every effort to repay their mortgage loans if they have already invested a significant amount of money in their homes.
  
  

When Equity Disappears

• You might not have enough equity in your home if your residence has lost value since you purchased it. If this happens, you might even have negative equity. This is known as being underwater. Conventional mortgage lenders won't approve you for a refinance if you have no or negative equity.
  
  

Determining Your Equity

• You won't be able to determine your home equity on your own to earn approval for a refinance. Instead, the lender with which you're refinancing sends an appraiser to your home to determine the current market value of your home. Only then can your lender calculate how much equity you have in your residence. As an example, if an appraiser determines that your residence is worth $150,000 and you still owe $140,000 on it, you have $10,000 worth of equity in your home. To figure your home equity percentage, divide your equity by your home's market value. If this figure is under 20 percent, you may have to seek alternatives for refinancing.
  
  

If You Don't Have Enough Equity

• If you don't have at least 20 percent equity in your home, it's not time to panic. You might still be able to refinance your loan. You can start by calling other lenders that are licensed to work in your state --- you don't have to work with the mortgage company that is currently servicing your loan --- and ask them if they ever perform mortgages for homeowners who lack 20 percent equity. If you still can't find any takers, you might be eligible for the federal government's Home Affordable Refinance Program, better known as HARP. Under HARP, homeowners who owe as much as 125 percent of their home's value can qualify for a refinance. If you owe $125,000 on your home valued at $100,000, you can qualify for a HARP refinance. You have to work with your existing lender, though, to complete a refinance through this program. Ask your lender if it's participating in HARP.