You’ve got a home. You’re paying down the mortgage each month, maybe even making extra payments when you can. What a lot of people miss is just how much that effort adds up over time—you’re building home equity, which is the difference between what your place is worth and what you owe.

But here's the big question everyone asks: when can you actually pull that money out? You can’t just call your bank after your third mortgage payment and expect a payout. Lenders want to see that you’ve put a real dent in your mortgage, or that your home’s value has jumped enough since you bought it. Usually, you need at least 15–20% equity built up before most banks will even consider letting you tap in.

This isn’t just about timelines. The real number depends on how your local housing market is doing and whether your home's value has gone up. Did home prices in your neighborhood spike last year? You might hit that sweet spot way sooner than you thought. Of course, a good credit score and a solid income help, too.

• What Home Equity Really Is
• How Much Equity Do You Need?
• The Best Time to Pull Equity
• Common Mistakes and Smart Tips

What Home Equity Really Is

Let’s get practical—when you hear the term home equity, think of it as the chunk of your house that’s actually yours, not the bank’s. It’s simple math: take your home’s current market value and subtract what you still owe on your mortgage. Whatever’s left is your home equity. For example, if your house is worth $400,000 and your mortgage balance is $280,000, you’ve got $120,000 in equity. That amount could be higher if your home’s value has climbed since you bought it—or lower if the market’s dropped or you just refinanced.

Your equity grows in a couple of ways. Every payment you make chips away at the loan, so that helps. The other big one? Your neighborhood takes off and home prices jump. That can boost your equity even if you haven’t made extra payments.

Here’s a quick look at how equity usually changes over time:

So, what’s the big deal about home equity? It’s not just a number on a statement. You can use it to refinance, borrow cash to fix up the place, or even fund major life goals. The catch is, you can’t spend all your home equity—you need to leave a buffer so you’re not over-leveraged. Lenders usually want you to hang on to at least 15–20%.

• Home equity is a real financial tool, not just a number.
• You build it by paying down your mortgage or catching a rise in your home’s value.
• Lenders often talk about “loan-to-value ratio” or LTV—basically, how much you owe compared to what your home’s worth.

How Much Equity Do You Need?

Before a bank lets you tap into your home’s value, you need to reach a certain amount of home equity. The magic number most lenders look for is 20%. That means if your house is appraised at $400,000, you’d need at least $80,000 in equity before you can even think about a home equity loan, line of credit, or a cash-out refinance.

Why 20%? Lenders use it to lower their risk. If you drop below that, they start to worry that a small dip in home prices—or missing a few payments—could leave you owing more than your place is worth. Here’s a quick peek at typical requirements for pulling out equity:

*LTV stands for Loan-to-Value ratio and tells you how much of your home’s value you can borrow against.

If you just bought your house and barely made a down payment, don’t expect lenders to let you pull out money right away. If you’ve been paying on your loan for a few years—or if property values have gone up—a quick online home value check might surprise you. Sometimes, improvements like kitchen remodels or finishing a basement tip the equity balance in your favor.

Here’s an easy way to figure out your equity:

• Find your home’s estimated market value (from an appraiser, online tools, or a recent sale nearby).
• Subtract what you still owe on your mortgage.
• The rest is your equity. If it’s at least 20% of your home’s value, you’re probably in good shape to apply.

Keep in mind, some banks may work with as little as 15% equity, but you’ll probably pay higher rates or extra fees. The more you have, the better your options and terms will be.

The Best Time to Pull Equity

Nailing the right moment to tap your home equity isn’t just about how much you’ve paid off. Timing is about blending your financial situation, what’s happening in the housing market, and your reasons for needing the cash. A lot of folks rush in, but waiting until the stars line up can save you a headache—and possibly thousands of dollars.

Let's talk numbers. Most banks want you to keep at least 20% equity in your home after the loan. That's why, if your home appraises at $400,000 and you owe $260,000, your lender might let you borrow up to $60,000. Here’s how that math works out:

So, when is the best time? Here are a few sweet spots:

• Home equity increases fast — maybe because neighborhood prices are way up, you’ve done major renovations, or you’ve knocked out a chunk of your mortgage.
• Interest rates are low. This means taking equity via a refinance or HELOC (Home Equity Line of Credit) won’t cost you as much over time.
• Your credit score is solid (think 700 or above). That makes lenders more flexible and usually gets you lower rates.
• You really need the cash for something big—debt consolidation, home improvements, the kids’ college fund—for reasons that grow your wealth or ease your stress, not just for splurges.

If your job situation is rocky or the economy is shaky, you might want to hold off. Lenders get nervous during downturns, and you want to be sure you can cover bigger payments.

One final thing: Experts at Freddie Mac reported that cash-out refinances jumped 33% between 2022 and late 2024, mostly when homeowners spotted a big increase in home values. So if your area is seeing home price spikes, that’s your cue to check your numbers and see if you’re in a good spot for equity release.

Common Mistakes and Smart Tips

People often stumble when trying to pull equity out too early or for the wrong reasons. One common mistake is overestimating how much equity you actually have. Just because your neighbor sold at a high price doesn’t mean your appraisal will match. Lenders usually send their own appraisers, and they can be stricter than real estate agents. So don’t plan big purchases before your numbers are confirmed.

Another huge misstep is ignoring the costs involved. A cash-out refinance, for example, comes with closing costs that can run from 2% to 5% of your loan amount. Home equity lines of credit (HELOCs) aren’t free money either—interest rates on those can jump in a hurry, especially if you just make minimum payments. If you tap your equity to pay off credit cards but start racking up more debt, you’re not solving anything. You’re just trading unsecured debt for debt backed by your house.

• Never pull out home equity unless you have a clear, solid plan for that cash—think home improvements that add value, college tuition, or consolidating high-interest loans (and then staying disciplined).
• Don’t forget to shop around for the best terms. Banks and credit unions can have wildly different offers based on your credit, how much you want, and your loan-to-value ratio.
• Keep an eye on your loan-to-value (LTV). Most lenders want you to keep at least 20% equity in your home after the new loan. If you go right up to the edge, you might struggle to refinance or sell later.
• Watch the fine print: some home equity products have prepayment penalties, annual fees, or big jumps in your interest rate after the first year.

Finally, talk through the big picture with someone you trust—maybe your partner, your financial advisor, or even your parents if they’ve been through it. There’s no prize for rushing this. Take your time and make your move when everything lines up in your favor.