You own rentals. Maybe one, maybe a dozen. You’ve built equity and you want to put it to work, whether that’s buying the next property, getting out of a hard money loan, or cleaning up a loan that’s about to adjust. And your bank wants two years of tax returns, where depreciation makes every one of your properties look like it loses money.
Short on time? Text me your numbers at 704-890-7168 and I’ll tell you what’s realistic, or jump to the calculator.
There are two decisions here. First, what kind of refinance:
Second, how you qualify:
DSCR stands for debt service coverage ratio. In other words, does the rent cover the payment? The lender divides the monthly rent by the full monthly payment, including principal, interest, taxes, insurance and any HOA. If the rent is $2,400 and the payment is $2,000, your DSCR is 1.2.
A ratio of 1.0 means the rent exactly covers the payment. Many programs want to see 1.0 or better, and pricing gets better as the ratio goes up. Some programs will go below 1.0, or skip the ratio entirely, with more equity and more reserves.
Short-term rentals can qualify too. Some lenders use your actual booking history, and some use a market projection for the property.
Cash-out limits on investment property are lower than on your home. Most programs land around 70 to 75% of value, and rate-and-term refinances can usually go a bit higher. Credit score and DSCR both move that number.
Quick math. Rental worth $400,000. At 75%, the new loan can be $300,000. You owe $180,000, so you could gross about $120,000 before closing costs. And the rent still has to cover the new, bigger payment, so run that part too.
The calculator below is already set to rental mode. Put in the rent and it checks coverage for you, and it compares a second loan against refinancing the whole property.
This is called seasoning. Conventional cash-out generally wants the property owned, and the current loan in place, for at least 12 months. Many DSCR programs allow cash-out at six months, and some will use the new appraised value sooner if you’ve put real work into the property.
If you bought with cash, delayed financing can let you pull money back out shortly after closing. That’s a big deal for investors who buy, fix, rent and refinance. Rules vary by lender, so ask before you plan around a date.
Turning the home you live in now into a rental? Start here: how long you need to live in your home before renting it out, and how renting it out can help you qualify for the next one.
With DSCR, generally yes. Most DSCR lenders will close in your LLC’s name with a personal guarantee from you. Conventional loans generally need the property in your personal name. If you’ve been meaning to move properties into an LLC, a DSCR refinance is often a clean time to do it. Talk to your attorney and CPA about the entity side.
If the rental has a first mortgage in the twos or threes, think hard before you refinance the whole thing. A cash-out refinance reprices every dollar you owe. A second mortgage or a line of credit on the rental leaves that loan alone and only prices the new money.
Local banks and credit unions generally won’t do a line on a rental, but some non-QM lenders will. I wrote it all up here: how to get equity out without refinancing.
On the other hand, if the current loan is hard money, a bridge loan, a balloon or an adjustable about to reset, refinancing the whole thing is usually the point.
Most DSCR loans carry one, commonly in the three to five year range, stepping down each year. You can usually shorten it or buy it out entirely in exchange for different pricing. The right choice depends on how long you’ll hold the property and whether you might sell or refinance again. Match the penalty to your plan, not the other way around.
Thinking about whether to keep a property or sell it at all? This page and calculator runs those numbers.
The property’s value, what you owe, your current rate, and what it rents for. Tell me what you want the money to do. I’ll tell you whether a DSCR refinance, a conventional loan or a second lien is the better play, and if the deal doesn’t need the money, I’ll tell you that too.
Scott Hastings, NMLS #926762
Call or text 704-890-7168
Yes. A DSCR refinance qualifies off the property’s rent compared with its payment, not your personal income, so no tax returns or pay stubs are required.
Many programs want the rent to cover the full payment, a DSCR of 1.0 or higher, and pricing improves as the ratio rises. Some programs allow lower ratios or no ratio with more equity and reserves.
Most investment property cash-out programs allow a new loan of about 70 to 75% of the property’s value, so you need to leave roughly 25 to 30% equity in. Limits vary with credit score, DSCR and property type.
Conventional cash-out generally requires about 12 months. Many DSCR programs allow cash-out at six months. If you bought with cash, delayed financing may let you pull money out shortly after closing.
Usually yes with a DSCR loan. Most DSCR lenders close in the LLC’s name with a personal guarantee. Conventional loans generally require the property in your personal name.
Yes. Some DSCR lenders qualify short-term rentals using actual booking history, and some use a market rent projection for the property.
Most do, commonly three to five years with a step-down each year. You can usually shorten or remove the penalty in exchange for different pricing.
If the rental has a low-rate first mortgage, a second lien or line of credit usually costs less because it leaves that loan alone. If the current loan is hard money, a balloon or an adjustable, refinancing the whole property is usually the better move.
