The Quick Read: A city surcharge on mortgage recording is a percentage of the whole new loan, not of the cash you pull out, and it exists in only a few places. In New York City, the city’s own share on a one-to-three-family loan runs about 1.0% to 1.125% of the new principal. Most markets charge only flat per-document recording fees, so a cash-out there has no city surcharge at all. The tax never enters the DSCR (debt service coverage ratio, which compares rent to the full monthly housing payment). It comes out of your net proceeds instead.
- The tax is measured on the full new loan, because a cash-out is a brand-new mortgage.
- Commonly cited combined totals in New York City run near 2.05% to 2.175% of the loan. The lender owes a quarter point of that on many residential loans.
- Property class matters. One-to-three-family and condo loans get the residential tier, and larger buildings fall into the commercial tier.
- A CEMA (a structure that assigns your old mortgage to the new lender) can shrink the taxed amount to new money only. It does not fit every payoff.
- The smaller the cash-back slice, the heavier the tax feels as a share of what you actually receive.
Most investors never meet this line item. The ones who do tend to meet it at the closing table, which is the worst time to learn it exists.
DSCR Cash-Out Calculator
Run the cash-out numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 8, 2026
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As of Oct 8, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Property value, balance, taxes, and insurance are editable estimates. Maximum loan-to-value varies by lender, program, property type, and seasoning. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Two Kinds of Surcharge: Flat Fee vs. Percentage of the Loan
Most recording charges are flat fees per document. A percentage-based city tax on the loan is rare, and New York is the clearest example. Both get called a surcharge, but they behave very differently on a cash-out.
A flat fee is a set charge per page or per document. It does not grow when the loan grows. A cash-out and a small refinance cost about the same to record. This is the normal setup in most counties.
A percentage tax works the other way. It scales with the loan, so a bigger loan pays more tax. A minority of states levy some form of mortgage recording tax, and which ones do varies, so your title agent can confirm whether your state is among them. Where such a tax exists, it is usually a state or county charge. A city layer on top is the exception.
Treat New York City as a worked example of how the mechanics run, not as a picture of what your market charges. If your property sits in a flat-fee county, the rest of this article is a lesson in what you are not paying.
How Much Does the City Layer Add?
On a one-to-three-family or condo loan in New York City, the city’s own tax is 1.0% of the new loan below $500,000 and 1.125% at $500,000 or more. State components stack on top. Commonly cited combined totals land near 2.05% and 2.175%.
The NYC Department of Finance mortgage recording tax profile sets out the city tier. It says the city tax is based on the principal debt secured by a mortgage on property in the city. It treats one-to-three-family homes, individual condos, and residential vacant land as residential. Everything else, including apartment buildings, counts as commercial. Individual co-op apartment loans owe nothing.
The state side is a bundle. The state’s mortgage recording tax bulletin calls the tax an excise on the privilege of recording a mortgage. It says the tax is made up of six separate taxes. Three are state-level, and three are add-ons for New York City, Yonkers, and Broome County. The total depends on the county, and on the city if there is one.
For larger buildings, the state’s regulation text with a worked example applies a 1.75% city tax to non-one-to-three-family property at $500,000 or more. State components of 0.50%, 0.25%, and 0.25% stack on top of that. That is the highest city tier.
| Loan type | City share | Commonly cited combined total |
|---|---|---|
| 1–3 family or condo, under $500,000 | 1.0% | about 2.05% |
| 1–3 family or condo, $500,000+ | 1.125% | about 2.175% |
| Larger or commercial, $500,000+ | 1.75% (regulation example) | state components stack on top |
| Co-op share loan | none | outside the tax |
One warning on reading these numbers. Combined figures are not interchangeable across sources. Some quote the statutory total, and some quote what the borrower nets after the lender’s share. Some fold the metropolitan-transportation add-on into the city figure. That is why a city share quoted near 1.55% on the smaller tier and the 1.0% in the city’s own profile describe different things. Ask your title agent which number they are showing you.
Yonkers is the other well-known city layer. It adds its own city tax on top of the county and state pieces. The city code attaches a sunset date to that tax, so confirm it still applies when you record.
How a DSCR Cash-Out Triggers It, Step by Step
A cash-out refinance is a new note and a new mortgage, so the full new principal is taxable. The tax is not limited to the equity you pull out. Here is how it moves through a file.
1. Trigger. Recording a new mortgage in a taxing jurisdiction creates the tax. Your cash-out is a new mortgage.
2. Base. The tax is computed on the principal secured. That includes the maximum amount the mortgage could secure in the future, per the state bulletin above.
3. Tier selection. Three things pick the tier: where the property sits, its class (one-to-three-family and condo versus everything else), and whether the loan is above or below $500,000.
4. Collection. The title or settlement agent collects the money at closing and pays it to the county recording officer. It shows up in the government taxes and charges portion of the settlement statement, apart from lender fees and flat recording fees.
5. Net proceeds. Your cash to borrower is the new loan, minus the payoff of the old loan, minus closing costs, minus any reserves funded from proceeds. The recording tax sits inside those closing costs.
Now the part that surprises people. The tax has no effect on DSCR lender review. The ratio looks at rent against PITIA, which is principal, interest, taxes, and insurance (plus association dues if any). A one-time recording tax is not part of that monthly figure. It does shrink your cash back. On a thin cash-out, it also shrinks the liquidity left for reserves.
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.
What the Tax Takes From Your Cash
The smaller the cash-back slice, the larger the tax looks next to it. A flat 2.05% of the whole loan is a modest cost on a big cash-out and a painful one on a small cash-out.
The table below is a modeled illustration, not sourced market data. It uses the full 2.05% combined figure for simplicity. Your borrower share can be lower where the lender pays the quarter point. It ignores other closing costs, so real outcomes will be worse.
| Cash back as share of the new loan | Tax as share of cash back, no CEMA | With a CEMA on new money only |
|---|---|---|
| 30% | about 6.8% | about 2% |
| 20% | about 10.3% | about 2% |
| 10% | about 20.5% | about 2% |
| 5% | about 41% | about 2% |
The 5% row is the trap. On a cash-out that mostly just pays off a bridge loan, you pay tax on the entire new principal while receiving a sliver of it. Honestly, that is the row where the deal usually deserves a second look.
The CEMA column assumes the whole old balance is assigned and only the new money is taxed. Rolled-in closing costs are new money too, so they stay taxable. Treat that column as a best case.
Here is the leverage side. Across the wholesale network Lendmire works with, a cash-out on an investment property tops out at about 75% LTV (loan-to-value, the new loan as a share of the property’s value). Say an old balance sits at 60% of value. A new loan at that 75% ceiling would put the new money at 15% of value, or a fifth of the new loan. Without a CEMA, the tax hits all of that loan. With one, it hits roughly that fifth. For the dollar view of this trade by loan size, see Lendmire’s piece How Much a CEMA Cuts Recording Costs on a DSCR Cash-Out by Loan Size. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Where the General Rule Breaks
The headline percentages bend in five places: who pays the quarter point, unit count, whether a CEMA is possible, how the borrower is vested, and which county you are in.
The lender-paid quarter point. On many residential loans, the special additional tax of 0.25% is payable by the lender and cannot be passed to the borrower. A law-firm explainer on who pays the tax says the relief applies per structure, and each unit needs its own cooking facility. It also says a nonprofit, tax-exempt lender is excused, and then the borrower owes it. Whether this rule holds for a non-owner-occupied rental, or a loan to an LLC, is a question for the title agent or counsel. LLC-titled borrowers are reviewed subject to lender program eligibility, so ask early.
Unit count. The city’s residential tier covers one-to-three-family homes and condos. A four-unit rental drops into the city’s commercial tier. The lender-paid quarter point can run up to six units. The two classifications do not line up, so a four-unit building can pay the higher city tier and still get the quarter-point relief.
CEMA feasibility. A CEMA needs an existing mortgage that can be assigned. Many BRRRR exits (buy, rehab, rent, refinance, repeat) pay off a hard-money loan. That is a poor fit, because the old lender has to cooperate and may have no reason to. Whether the existing lien is assignable depends on the old lender and on timing. Plan for that early, not at the closing table.
A conflicting claim. Some sites say a refinance at or below the current balance owes nothing. Most sources say any refinance triggers the tax unless a CEMA is used. Treat the first claim as unverified and ask your title agent in writing.
Different counties and states. A flat-fee county has no percentage tax. A state or county tax elsewhere may follow different tiers entirely. Do not carry any figure here to another market.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Is a CEMA Worth It on Your Cash-Out?
A CEMA tends to pay off when your old balance is large, your existing lender will assign it, and your cash-back slice is small. It tends not to when the old loan is a short-term private note.
Run this checklist before you count on one:
- Does the existing lender agree to assign the mortgage, and on what timeline?
- Is the old loan a bank-style note or a hard-money note?
- What fees do the old lender and the attorneys charge for the paperwork?
- How large is the new-money slice, including costs rolled into the loan?
- Who pays the CEMA fees, and can the cost be shared?
And the skip list. A CEMA is rarely worth the effort when the tax saved is smaller than the fees and the added coordination. Also skip it when the old lender will not cooperate. On a big cash-out with a tiny old balance, there is little to shelter anyway.
For the bigger picture on what lands in your account, read Lendmire’s guide How Much Cash an Investor Cash-Out Refinance Releases After Costs.
What the DSCR Cash-Out Itself Requires
A DSCR cash-out qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The recording tax only changes how much cash you walk away with.
Across the wholesale network Lendmire works with, here is what shapes a typical file, always subject to lender guidelines:
- Leverage. A cash-out on an investment property tops out around 75% LTV.
- Seasoning. About 6 months of ownership, measured from title recording, is the common expectation.
- Coverage. 1.00 is where select programs start, not a universal standard. Stronger ratios open better terms and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
- Credit. A 620 floor exists in parts of the network. Many programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Reserves. Commonly about 6 months of PITIA, and about 9 months on loans above $1,500,000. They vary by lender, leverage, and loan size.
- Loan size. Up to $3,000,000 on standard programs. Smaller balances route through select lenders in the network.
Clearing 1.00 does not mean positive cash flow. Repairs, vacancy, management, utilities, and capex sit outside the calculation. The equity you can access depends on rent used for lender review, PITIA, reserves, and the 75% ceiling, so it is never a guaranteed cash figure. The recording tax then trims what is left. For the full mechanics, see the complete DSCR loans guide.
Key Terms Defined
Mortgage recording tax: a percentage tax charged on a new mortgage’s principal when it is recorded, found in only some jurisdictions.
Flat recording fee: a set per-document charge that does not change with the loan amount.
CEMA: a Consolidation, Extension and Modification Agreement, which assigns the existing mortgage to the new lender so tax applies only to new money.
Cash-out refinance: a new loan larger than the old payoff, with the difference paid to you after costs.
PITIA: principal, interest, taxes, insurance, and association dues, the full monthly obligation used in the DSCR calculation.
Seasoning: the waiting period a lender wants between buying a property and refinancing it for cash.
Frequently Asked Questions
Does a cash-out refinance trigger the city surcharge?
Yes, where a percentage tax exists, because a cash-out is a new mortgage and the full new principal is taxable. A CEMA is the usual way to limit the taxed amount to new money. Confirm with your title agent which rule applies where your property sits.
Who pays the city surcharge, the borrower or the lender?
The borrower pays most of it, but the lender owes a share on many residential loans. The lender cannot pass that piece on. Quoted totals differ because some sources show the full statutory figure and some show the borrower’s share.
Is the tax on the loan amount or the cash I take out?
It is on the full new loan, not on the cash-out slice. A CEMA is the main exception, since tax is then due only on new money. Costs rolled into the loan count as new money.
Does the recording tax change my DSCR?
No. The ratio compares rent to PITIA, and a one-time recording charge is not part of that monthly figure. It does reduce cash to you and can affect your reserve and liquidity picture.
Can I deduct the recording tax?
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Next Steps
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Any estimate from the illustrative calculator is a starting point, not a quote.
Before you commit to a cash-out in a percentage-tax market, ask the title agent for the full recording line in writing, because that one number can decide whether the refinance beats waiting.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. NYC Dept of Finance MRT Statistical Profile
4. Cuddy & Feder, New York Mortgage Recording Tax
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get an Investment Property HELOC Vested in an LLC · How to Get a HELOC Behind a DSCR Loan When Banks Decline · Can an LLC-Owned Rental DSCR Cash-Out With No Seasoning?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.