1st Advantage MortgageA DSCR cash-out refinance replaces your current loan on a rental with a new, larger loan and pays you the difference, qualified on the property's rent instead of your personal income. Cash-out generally allows lower maximum LTVs than a purchase, many lenders apply seasoning or other conditions, and the new payment must still meet the program's DSCR minimum.
How it works
- An appraisal sets the property's value and market rent.
- The lender applies a maximum LTV for cash-out, which is generally lower than for a purchase.
- The new loan pays off the old mortgage and the closing costs.
- What is left is your cash-out proceeds.
- The new payment (PITIA) must still meet the DSCR minimum with the rent.
Common conditions
- Seasoning. Some lenders want a period of ownership before cash-out, or use a different value measure for recent purchases.
- Lower LTV. Cash-out usually has lower leverage limits than a purchase.
- DSCR minimum. A larger loan means a larger payment, which lowers the ratio.
- Reserves. Many programs require reserves, and some count cash-out proceeds toward them.
- Prepayment penalty. Common on DSCR loans, so check the schedule if you plan to refinance again.
Using the cash
Investors often use proceeds as the down payment on the next rental. That strategy increases leverage and your monthly obligations, so keep reserves and run the new property through the DSCR calculator too. Talk to a tax advisor about how cash-out proceeds are treated.
Also see: DSCR loan rates and costs and how DSCR loans work.
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Keep reading
- How to Calculate DSCR for a Rental Property (With a Worked Example)
- How to Improve a Low DSCR: 8 Practical Levers for Rental Investors
- DSCR Loan Documents Checklist for North Carolina and South Carolina Investors
- Buying a Rental Property in an LLC With a DSCR Loan in NC and SC
- DSCR Loan Closing Costs and 10 Questions to Ask Before You Lock
General information for investors, not legal, tax or lending advice. Programs and guidelines vary by lender and change. This is not a commitment to lend.
Frequently asked questions
How much equity can I take out with a DSCR cash-out refinance?
It depends on the lender, but cash-out generally has lower maximum LTVs than a purchase. Your officer will show the number for your file.
Can I do a cash-out refinance right after buying?
Some lenders require seasoning. Others allow it on different terms. It varies by program, so ask early.
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- We compare specialist wholesale lenders instead of fitting you to one lender's menu
- Qualify on the property's rent, with no tax returns, W-2s or pay stubs on any program
- North Carolina and South Carolina investors, including first-time investors and LLC buyers
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