Home Equity Milestones: Key Thresholds and What They Unlock

[Building home equity](/blog/how-home-equity-grows) isn't just about watching a number grow. At specific percentage thresholds, new financial doors open—lower costs, borrowing options, and protections you didn't have before.

Think of it like leveling up in a video game. Each milestone unlocks new abilities. Here's every major one, what it means, and how to get there faster.

The Equity Milestones at a Glance

Let's break each one down.

5% Equity — You're in Positive Territory

LTV: 95%

This is the most basic milestone: you owe less than your home is worth. If you bought with a minimum down payment (3-5%), you start here or reach it within the first year or two.

What it means:

• You can sell without bringing money to the closing table (though selling costs might still create a gap)
• You have a small cushion against minor market dips
• You're technically a homeowner with positive equity, not an underwater borrower

What it unlocks:

• The peace of mind that you're not underwater
• Very limited borrowing options (most lenders want much more equity)

What it doesn't unlock:

• PMI removal
• HELOC eligibility at most lenders
• Favorable refinancing terms

How to get here: If you bought with 3% down, making regular payments for 1-2 years (plus any market appreciation) typically gets you to 5%.

10% Equity — Options Start Opening

LTV: 90%

At 10% equity, you start to have real options. You're no longer on the knife's edge of going underwater, and some lenders will start working with you.

What it unlocks:

HELOC eligibility (limited). A few lenders offer HELOCs at 90% combined LTV (your first mortgage plus the HELOC can equal up to 90% of [home value](/blog/appraisal-process-explained)). The amounts will be small and rates higher, but access exists.

FHA refinancing. FHA loans allow refinancing at up to 97.75% LTV, so 10% equity gives you comfortable eligibility.

Conventional refinancing. Some conventional refinance products are available at 90% LTV, though you'll still need PMI.

Better position to sell. With 10% equity on a $400,000 home, you have $40,000—likely enough to cover selling costs (6-8% of sale price, or $24,000-$32,000) and walk away with something.

Realistic timeline: 2-4 years after purchase with typical appreciation and payments, or immediately if you put 10%+ down.

15% Equity — HELOC Country

LTV: 85%

This is where things get interesting. At 15% equity, the HELOC market opens up significantly.

What it unlocks:

Most HELOC products. The majority of lenders offer HELOCs when your combined LTV stays at or below 85%. If your home is worth $450,000 and you owe $300,000, you have $150,000 in equity (33%). A lender might offer a HELOC of up to $82,500 (keeping combined debt at 85% of home value).

Home equity loans. Similar to HELOCs but with a fixed rate and lump sum. Most become available at this threshold.

Improved refinance rates. Conventional refinance rates are noticeably better at 85% LTV than at 90%.

Example HELOC calculation at 15% equity:

• Home value: $400,000
• Maximum 85% combined LTV: $340,000
• Current mortgage: $340,000
• Available HELOC: $0

Wait—in this case, you're exactly at 85% LTV, so there's nothing to borrow. You need to be above 15% equity for a meaningful HELOC. If the mortgage were $310,000 (22.5% equity):

• Maximum 85% combined LTV: $340,000
• Current mortgage: $310,000
• Available HELOC: up to $30,000

This is why 15% is the threshold where HELOCs become possible, but you'll need more equity for a useful amount.

Realistic timeline: 3-5 years after purchase with a 10% down payment and moderate appreciation.

20% Equity — The Big One

LTV: 80%

This is the milestone most homeowners are chasing, and for good reason. It's the most financially significant threshold in homeownership.

What it unlocks:

PMI Removal

Private mortgage insurance is required on conventional loans when your down payment is less than 20%. It typically costs 0.5-1.5% of the loan amount annually, which translates to:

Eliminating PMI at 20% equity can save you $150-$500+ per month. Over the remaining life of your mortgage, that's potentially tens of thousands of dollars.

How to remove PMI:

1. Automatic termination: By law (Homeowners Protection Act), your servicer must cancel PMI when your loan balance reaches 78% of the original purchase price. Note: this is based on original value, not current value.
2. Borrower-requested cancellation: You can request PMI removal when your balance reaches 80% of the original value. You may need a clean payment history (no late payments in the past 12 months).
3. New appraisal route: If your home has appreciated significantly, you can request cancellation based on current market value. Most lenders require a new appraisal ($300-$600) and that you've had the loan for at least 2 years. You'll typically need 75% LTV (25% equity) if less than 5 years into the loan, or 80% LTV (20% equity) if 5+ years in.

Full Refinance Flexibility

At 80% LTV, you qualify for the best conventional refinance products without PMI. This gives you the most options and often the best rates.

Meaningful HELOC Access

With 20% equity, HELOCs become genuinely useful. On a $450,000 home:

• Current mortgage: $360,000 (80% LTV)
• Maximum 85% combined LTV: $382,500
• Available HELOC: up to $22,500

Not huge, but workable for home improvements, emergency reserves, or debt consolidation.

[Cash-Out Refinance](/blog/cash-out-refinance-guide) Eligibility

Most lenders allow cash-out refinances up to 80% LTV. At exactly 20% equity, you can't do a cash-out refinance (you're already at 80%). But if you have more than 20% equity, this option opens up.

Realistic timeline: 4-7 years after purchase with a 10% down payment and average appreciation. Could be 2-3 years in strong markets.

Pro Tip: Speed Up PMI Removal

If you're close to 20%, consider:

1. Making extra principal payments to reach the threshold faster
2. Getting an appraisal if you believe your home has appreciated (home improvements can help justify a higher appraisal)
3. Checking if any substantial home improvements you've made would justify a reappraisal

The math often works: if PMI costs $250/month and you need $5,000 in extra payments to cross the 20% line, you recoup that $5,000 in just 20 months through PMI savings.

25% Equity — The Sweet Spot for Borrowing

LTV: 75%

At 25% equity, you enter the sweet spot for home equity borrowing. Lenders love this level of cushion.

What it unlocks:

[Best HELOC rates](/blog/heloc-rate-negotiation-guide). Many lenders offer their most competitive HELOC rates at 75% combined LTV or below. The rate difference between 85% CLTV and 75% CLTV can be 0.5-1.0 percentage points.

Substantial borrowing capacity. On a $450,000 home with $337,500 mortgage (75% LTV):

• At 85% CLTV max: HELOC up to $45,000
• At 90% CLTV max: HELOC up to $67,500

Conventional refinance sweet spot. Rates are typically at or near their best at 75% LTV. There's little improvement in rate beyond this point for most lenders.

Strong market downturn protection. At 25% equity, your home would need to lose a quarter of its value before you'd be underwater. Even in severe downturns, this provides significant protection.

PMI removal via appraisal (under 5 years). As mentioned above, if you've owned for less than 5 years, most lenders require 25% equity (75% LTV) based on a new appraisal to remove PMI. At this milestone, you qualify regardless of how long you've owned.

Realistic timeline: 5-8 years from purchase with a 10% down payment and average appreciation.

30% Equity — Premium Territory

LTV: 70%

At 30% equity, you're in premium borrowing territory and have a substantial financial cushion.

What it unlocks:

Best available HELOC terms. Some lenders reserve their absolute best rates for borrowers at 70% CLTV or below. You're now getting top-tier pricing.

Larger borrowing capacity. On a $500,000 home with $350,000 mortgage:

• At 85% CLTV: HELOC up to $75,000
• At 90% CLTV: HELOC up to $100,000

These are amounts that can fund significant renovations, college tuition, or business investments.

Cash-out refinance with room. You can take cash out and still stay below 80% LTV, maintaining good terms.

Significant recession cushion. A 30% equity buffer means your home would need to lose nearly a third of its value to put you underwater—a scenario that's historically rare outside of the worst-hit markets in the worst downturns.

Realistic timeline: 7-12 years from purchase with average conditions.

40% Equity — Wealth-Building Mode

LTV: 60%

At 40% equity, you've built serious wealth in your home. You're past the point of worrying about most market risks.

What it unlocks:

Premium rates across all products. Some lenders have rate tiers that improve all the way down to 60% LTV. At this level, you're getting the best rates available for any home-secured borrowing.

Major financial flexibility. On a $500,000 home with $300,000 mortgage ($200,000 equity):

• Tappable equity (keeping 20% cushion): up to $100,000
• Could fund a rental property down payment, major renovation, or significant investment

Bridge loan eligibility. If you want to buy your next home before selling your current one, substantial equity makes bridge loans feasible.

Strong negotiating position. Whether refinancing, getting a HELOC, or negotiating with contractors (who sometimes offer better terms to clients financing through equity), having 40%+ equity puts you in a position of strength.

Realistic timeline: 10-15 years from purchase, depending on down payment and appreciation.

50% Equity — Halfway Home

LTV: 50%

You own more of your home than the bank does. This is a psychological and practical milestone.

What it unlocks:

Maximum borrowing capacity. Lenders are extremely comfortable at this LTV. Your options are maximized and rates are at their floor.

Serious investment potential. On a $600,000 home with $300,000 mortgage:

• Tappable equity: up to $180,000 (keeping 20% cushion)
• This could fund an investment property, major business venture, or your children's education

Downsizing flexibility. If you decide to downsize, 50% equity means selling a $600,000 home yields roughly $270,000-$280,000 after paying off the mortgage and selling costs. That's a significant nest egg.

Near-immunity to market corrections. Your home would need to lose half its value to put you underwater. This hasn't happened nationally since the Great Depression, and even in 2008, only the most extreme local markets saw declines approaching this level.

Realistic timeline: 12-18 years from purchase under typical conditions.

100% Equity — Mortgage-Free

LTV: 0%

The final milestone. No mortgage. You own your home outright.

As of 2024, about 40% of American homeowners—roughly 33 million households—own their homes free and clear. It's more common than many people realize, especially among older homeowners.

What it unlocks:

Dramatically lower monthly costs. Your housing costs drop to just property taxes, insurance, maintenance, and utilities. For many homeowners, this cuts monthly housing expenses by 50-70%.

Complete financial flexibility. No mortgage payment means maximum cash flow for investing, traveling, giving, or enjoying life.

Maximum borrowing power against the home. If you ever need to tap equity, you can borrow against the full value (minus the lender's equity retention requirement).

Psychological freedom. There's something powerful about knowing you can't lose your home to a bank. Many homeowners report that paying off the mortgage was one of the most significant moments of their financial lives.

Simplified estate planning. A home with no mortgage is simpler to pass to heirs. No loan to worry about, no payments to maintain during probate.

Is Paying Off the Mortgage Always the Right Goal?

Not necessarily. Financial arguments exist for not paying off a low-rate mortgage:

• A 3% mortgage means your money might work harder invested elsewhere (historically 7-10% in diversified equities)
• Mortgage interest may be tax-deductible
• The cash used for payoff could serve as an emergency fund or retirement savings
• Inflation erodes the real cost of fixed-rate debt over time

But for many people, the security and peace of mind of zero debt on their home outweighs the mathematical optimization. Both approaches are valid.

Realistic timeline: 15-30 years from purchase, depending on loan term and extra payments.

Accelerating Your Path Through the Milestones

1. Extra Principal Payments

The single most direct way to hit milestones faster. On a $350,000 mortgage at 6.5%:

*Assuming 3% annual home appreciation and 10% starting equity.

2. Strategic Refinancing

If rates drop, refinancing to a lower rate means more of each payment goes to principal. A 1% rate reduction on a $350,000 mortgage can accelerate equity building by thousands of dollars per year.

Alternatively, refinancing from a 30-year to a 15-year term dramatically accelerates milestones—if you can handle the higher payment.

3. Value-Add Improvements

Targeted renovations can push your home's value up, effectively leapfrogging equity milestones. A $15,000 kitchen refresh that adds $20,000 in value creates $5,000 in new equity (and moves you $20,000 closer to the next threshold based on the higher home value).

4. Reappraisal After Appreciation

If your market has appreciated significantly, getting a new appraisal can officially "move" you to a higher equity tier. This is particularly useful for:

• PMI removal (need to demonstrate 20-25% equity)
• HELOC applications (your borrowing capacity is based on current value)
• Refinancing at better terms

An appraisal costs $300-$600 but can save you thousands by reclassifying your equity position.

5. Lump Sum Payments

Bonuses, tax refunds, inheritance, or other windfalls applied to principal can jump you past milestones quickly. A $10,000 lump sum is $10,000 closer to every future milestone.

Milestone Tracker: Where Are You?

Here's a quick way to figure out your current milestone:

1. Find your home's estimated value (Zillow, Redfin, or recent comparable sales)
2. Check your mortgage balance (lender's website or latest statement)
3. Calculate equity: Home Value − Mortgage Balance = Equity
4. Calculate [equity percentage](/blog/how-to-calculate-home-equity): Equity ÷ Home Value × 100

Example:

• Home value: $475,000
• Mortgage balance: $342,000
• Equity: $133,000
• Equity percentage: 28%

This homeowner has passed the 25% milestone and is working toward 30%. They've unlocked PMI removal, solid HELOC eligibility, and favorable refinance terms.

Frequently Asked Questions

What's the most important equity milestone?

For most homeowners, 20% is the most impactful because it triggers PMI removal—an immediate, tangible monthly savings. After that, 25% is significant because it unlocks the best borrowing terms.

How do I know when I've hit a milestone?

Monitor your mortgage balance (check your statement) and periodically estimate your home's value. The milestones are based on the ratio between the two. For official purposes (like PMI removal), your lender will use a formal appraisal.

Can I skip milestones?

Sort of. In a hot market, rapid appreciation can push you from 10% to 25% equity in a year or two. You don't experience each milestone individually—they unlock automatically as your equity grows.

Do milestones matter differently for different loan types?

Yes. FHA loans have different PMI (called MIP) rules—MIP often lasts the life of the loan regardless of equity, which is one reason people refinance into conventional loans after reaching 20% equity. VA loans have no PMI at all, so the 20% milestone is less critical for VA borrowers.

What milestone should I aim for before tapping my equity?

Ideally, 25-30% before taking a [HELOC or home equity loan](/blog/home-equity-loan-vs-heloc-2026). This gives you access to the best rates while maintaining a healthy equity cushion. Borrowing at 15% equity is possible but means higher rates and thin margins.

Does my equity milestone change if home values drop?

Yes. If your home's value declines, your equity percentage drops even though your dollar equity may still be positive. A homeowner at 25% equity who sees a 10% value drop might fall back to 17%. Milestones are dynamic.

The Bottom Line

Home equity milestones aren't just abstract numbers—they're triggers for real financial benefits. Each threshold you cross unlocks lower costs, better borrowing terms, greater flexibility, and stronger financial security.

Know where you stand. Know what's next. And consider whether accelerating to the next milestone—through extra payments, improvements, or strategic refinancing—is worth the effort. For most homeowners, the answer is yes, especially for the jump to 20% equity where PMI removal creates immediate, ongoing savings.

Your equity is building every month. The question is whether you're letting it happen passively or actively steering toward the milestones that matter most.

Related Articles

• [10 Strategies to [[Build Home Equity](/blog/equity-building-strategies) Faster](/blog/build-home-equity-faster)](/blog/equity-building-strategies)
• [Using a HELOC for an Investment Property Down Payment: Smart Strategy or Risky Move?](/blog/heloc-for-investment-property-down-payment)
• Using a HELOC as a Down Payment for Rental Property