The Quick Read: Most rate-and-term refinances on a rental property want somewhere between 20% and 25% equity, while cash-out refinances typically cap around 75% loan-to-value, meaning at least a quarter of the property’s value has to stay unborrowed. The exact number shifts with property type, credit profile, and whether the rent clears the lender’s coverage test at that leverage level. Equity is only one gate among several — credit, reserves, and rental coverage all have to clear at the same time for the file to close.
Key Takeaways
- Rate-and-term refinances on standard rentals typically need 20%-25% equity (75%-80% LTV), with select high-leverage programs reaching 85% LTV for borrowers with strong credit.
- Cash-out refinances cap around 75% LTV on most standard rentals, so at least 25% equity has to remain in the deal after the new loan funds.
- Short-term rental cash-out refinances run tighter, capping near 70% LTV, versus roughly 75% for standard long-term rental cash-out refinances.
- Equity clears one test. A separate rent-to-payment coverage ratio, known as DSCR, has to clear at the same time — a lender will not waive one requirement because the other looks strong.
- Credit, reserves, and seasoning (how long the property has been owned) all interact with the equity number and can tighten or loosen it on a given file.
What Equity Actually Means on a Rental Refinance
Equity is the gap between what the property is worth and what’s owed against it. A lender expresses that gap as loan-to-value, or LTV — the loan amount as a percentage of appraised value. Flip the LTV number and you get the equity requirement: an 80% LTV ceiling means 20% equity has to stay in the deal, and a 75% ceiling means 25%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
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Lenders treat investment property more cautiously than a primary home. A vacant rental produces no income to cover the payment. And an investor under financial stress is statistically more likely to walk away from a rental than a primary residence. This is why equity thresholds are tighter on non-owner-occupied property across the industry. It holds true whether the loan is agency-backed or a non-QM investor product.
Key Terms Defined
Loan-to-value (LTV): the new loan amount expressed as a percentage of the property’s appraised value; the inverse of LTV is the equity that has to remain in the deal.
DSCR (debt service coverage ratio): a comparison of the property’s monthly rent against its full monthly obligation — principal, interest, taxes, insurance, and any association dues — used to decide if the rental income supports the loan.
Rate-and-term refinance: a refinance that replaces the existing loan without pulling meaningful cash out, generally used to adjust loan structure rather than access equity.
Cash-out refinance: a refinance that pulls a portion of the property’s equity out as loan proceeds, underwritten more conservatively than a rate-and-term transaction because more cash is leaving the deal.
Seasoning: the minimum time a property must be owned, or a prior loan must be in place, before a lender will use the current appraised value for a cash-out refinance.
How Much Equity for a Rate-and-Term Refinance?
Rate-and-term refinances on a standard rental generally land between 75% and 80% LTV, which means 20% to 25% equity has to stay in the property. That’s the same leverage band most lenders use on a purchase, since no cash is leaving the deal.
Some lenders in the network extend to 85% LTV — as little as 15% equity — for borrowers with credit scores around 700 or higher. That higher-leverage tier is not universal; it depends on the borrower’s credit profile, the property type, and the lender’s own overlay at the time of application.
How Much Equity for a Cash-Out Refinance?
Cash-out refinances on a standard rental cap around 75% LTV across most of the network, so at least 25% equity has to remain after the new loan funds — tighter than most rate-and-term structures because more cash is leaving the deal. About six months of ownership seasoning is a common expectation before a lender will size the loan off current appraised value rather than the original purchase price. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Short-term rental collateral pushes that leverage further. Cash-out refinances on short-term rentals typically cap near 70% LTV. Standard long-term rental cash-out refinances cap at roughly 75% LTV. Lenders generally want a credit score around 700 or higher. They also want roughly 12 months of documented hosting history before extending that leverage.
| Refinance Scenario | Typical LTV Ceiling | Approximate Equity Retained |
|---|---|---|
| Rate-and-term, standard rental | 75%-80% | 20%-25% |
| High-leverage purchase (700+ credit) | Up to 85% | As low as 15% |
| Cash-out, standard rental | Up to 75% | At least 25% |
| Cash-out, short-term rental | Around 70% | At least 30% |
Where Rental Coverage Fits Into the Equity Math
Equity and coverage are two separate tests. Both have to pass. A strong DSCR doesn’t make up for a shortfall in equity. And heavy equity doesn’t excuse a weak coverage ratio. Lenders measure the property’s rent against its full monthly payment. A rental loan typically qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. This is different from the borrower’s traditional personal-income documentation.
Select programs in the network set 1.00 as a starting floor for qualification on some files. This means the rent covers the full payment with nothing left over. That 1.00 mark is a floor for specific programs, not a universal standard. Stronger ratios generally open better leverage and pricing tiers. Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted to compensate for the shortfall. A separate no-ratio path also exists through select lenders. It’s generally reserved for borrowers who already own a primary residence. And it isn’t priced or leveraged the same as a standard DSCR file.
One thing worth being direct about: clearing 1.00 coverage is not the same as positive cash flow. The ratio only measures rent against principal, interest, taxes, insurance, and association dues. Repairs, vacancy, property management, utilities, and capital expenses sit outside that calculation entirely. A property clearing 1.05x on paper can still run negative once you count real operating costs.
Credit, Reserves, and Loan Size Move the Number Too
Equity is the headline test, but it’s rarely the only one that decides the file. Credit scores across the network run from a 620 floor on some programs up to tiers that open at 660 and strengthen again at 680 and 700-plus, where the best leverage becomes available. Reserve requirements — the cash left over after closing, measured in months of PITIA — commonly run around six months on standard files and step up toward nine months on loans above roughly $1.5 million.
Loan size matters too. Standard programs across the network commonly go up to $3,000,000, with smaller balances handled through select lenders that focus on that end of the market, and loans above about $2,500,000 typically settle into 30-year fixed structures rather than shorter or adjustable terms. A file with plenty of equity but a thin credit file or no reserve cushion can still stall — equity alone doesn’t carry a weak application across the finish line.
In practice, some files come in tight on equity but strong on coverage, or the reverse. These are the ones that end up needing a second look from underwriting. A property with 1.35x coverage but only 18% equity available doesn’t automatically get a pass on the leverage cap. And a property sitting at 30% equity with coverage barely above 1.00 will get more scrutiny on the rent figure itself, not less. Lenders evaluate the two numbers together. A file that’s strong on only one of them usually needs a compensating factor somewhere else — better reserves, a higher credit tier, or a smaller loan relative to value.
Where the General Rule Breaks
A handful of situations change the equity math in ways the standard rate-and-term-versus-cash-out framework doesn’t capture.
All-cash purchases. An investor who buys a rental outright, without financing, generally isn’t subject to the same seasoning wait before refinancing. On the agency side, this is often called delayed financing; Fannie Mae’s Selling Guide addresses cash-out eligibility for exactly this scenario. The tradeoff: the new loan typically gets capped at the lower of the current appraised value or the documented cash purchase cost. An investor who force-appreciated the property through renovation may find proceeds sized closer to the original purchase price rather than the post-rehab value — the exception waives the waiting period, not the value ceiling.
Inherited or legally awarded property. Ownership seasoning exceptions commonly apply when title changed hands through inheritance, divorce, or a similar legal award rather than a purchase. Non-QM lenders generally build a version of this exception into their own overlays, though the documentation each one requires varies.
Short-term rental appraisals need a different tool. The standard single-family rent schedule wasn’t built with nightly rentals in mind. McKissock Learning notes that this form isn’t designed for properties used as short-term rentals and doesn’t account for occupancy patterns or the operating expenses tied to that use. Lenders financing short-term rental equity extraction generally need a supplemental analysis rather than the standard long-term-rent comparison — which is part of why STR cash-out refinances run tighter on leverage in the first place.
Cash-out proceeds carry a business-purpose string. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage, and that includes how proceeds get used. Cash-out proceeds on a DSCR refinance are generally expected to serve the borrower’s real estate business — funding another acquisition or property-related costs — rather than personal spending. That’s a documentation detail investors sometimes miss until it holds up a file.
Manufactured homes, log homes, and barndominiums. These property types fall outside the DSCR programs in the network entirely, regardless of how much equity the borrower brings to the table. Equity doesn’t fix an eligibility problem tied to the collateral itself.
A Worked Scenario
Picture a single-family rental purchased for $310,000 that’s now appraised at $410,000, held long enough to clear a lender’s seasoning window. A cash-out refinance capped at 75% LTV sizes the new loan against that $410,000 appraised value, which leaves 25% equity in the deal after closing. If the property’s rent comfortably covers the resulting monthly obligation at roughly 1.15x, the file clears both the equity ceiling and the coverage floor at the same time. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Now hold leverage lower — say the borrower only wants to pull proceeds down to 65% LTV instead of the full 75% ceiling. Substantially more equity stays in the property, and the same rent figure likely pushes coverage well above 1.30x, which can open stronger pricing tiers or support a lower credit-score tier on the file. That’s the tradeoff every cash-out decision comes down to: more proceeds now, or more cushion and better terms later. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
DSCR files backed by short-term rental income tend to show a different pattern. The trailing twelve-month hosting income often clears coverage comfortably. But the long-term rent comparison used as a backup number frequently runs tighter. This is one reason lenders ask for actual platform income history rather than relying on a standard rent schedule alone.
When More Equity Doesn’t Solve the Problem
A bigger down payment lowers the loan amount and can lift coverage, but it doesn’t override a leverage cap, a credit floor, a reserve requirement, or an eligibility restriction on the property type. The strongest files clear two tests at once: enough equity to satisfy the LTV ceiling, and enough rental coverage to satisfy the DSCR floor. An investor sitting on 40% equity in a property that only produces a 0.85x coverage ratio still has a coverage problem — extra equity doesn’t rewrite the rent roll. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Tax treatment can depend on how you use refinance funds and how the property is titled. Investors should keep clear records. They should also talk to a qualified tax professional before relying on any deduction. If the proceeds go toward another acquisition instead of sitting on the sidelines, it’s worth comparing a cash-out refinance against other ways to tap that equity before committing to one structure over another.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help compare DSCR loan options based on the property’s income, credit profile, leverage, and investor goals. Investors can reach Lendmire at 828-256-2183 or request a quote directly to walk through a specific scenario.
Frequently Asked Questions
Can I refinance an investment property with less than 20% equity?
On most standard rate-and-term and cash-out programs, no — 20%-25% equity is the common floor for a standard rental. A handful of high-leverage purchase and rate-and-term programs go as low as 15% equity for borrowers with strong credit, generally around 700 or higher, but that’s an exception rather than a typical refinance option.
Does strong rental income lower the equity I need?
Not directly. Equity and rental coverage are evaluated as separate tests, and a strong DSCR doesn’t reduce the LTV ceiling a lender applies. A property with excellent coverage but insufficient equity still needs more cash or a lower loan amount to clear the leverage requirement.
Is a HELOC an alternative to a full cash-out refinance?
It can be, particularly for smaller equity draws. Investment property home equity lines in the network cap at $500,000 total rather than scaling with property value the way a first-lien refinance does, which makes a home equity loan on an investment property a better fit for smaller draws and a full cash-out refinance the more practical route for larger ones.
Does the equity requirement change for a 2-4 unit property versus a single-family rental?
It can, and small multifamily properties are generally underwritten with a separate appraisal document rather than a single-family rent schedule, since the report has to capture income and expenses across multiple units rather than one lease. Exact leverage on any given multi-unit file still depends on the specific lender’s guidelines, the borrower’s credit profile, and the property’s coverage ratio.
Do overlay states change how much equity I need?
In every state — Connecticut, Florida, Illinois, and New Jersey among them — the standard limits apply: purchase leverage in the network reaches up to 80% LTV (85% by exception), and loan amounts can reach $3,000,000. Investors in those states should expect the same equity requirement that the general range suggests.
About Lendmire
Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender on property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.
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References
1. Fannie Mae Selling Guide — Cash-Out Refinance Transactions (B2-1.3-03)
2. McKissock Learning — Form 1007 and Short-Term Rental Appraisals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: 80 DSCR Refinance · Saving For An Investment Property Instead Of A House · Cash Out Refinance Do You Have To Put Money Down?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.