How Much a Conventional Refinance Finances When Combining a HELOC

The Quick Read: A refinance that combines a first mortgage and a HELOC creates one new first lien, and that lien has to be large enough to pay off both old balances plus any financed costs. The ceiling is the appraised value multiplied by the program’s maximum LTV, and whatever sits under that ceiling after the payoffs is the cash you can take out.

• The payoff comes out of the maximum loan. A larger HELOC balance means less cash back.
• On a standard investment rental, a DSCR cash-out across most of Lendmire’s network tops out around 75% LTV. On short-term-rental collateral the ceiling is 70%.
• The HELOC has to be closed at funding, or it stays behind the new loan as a second lien and counts against combined leverage.
• Paying off a HELOC usually makes the transaction a cash-out, even if little cash comes back.
• On a DSCR file the new loan is also the number rent has to cover, so a bigger payoff can drop coverage.

Lendmire is a broker. It arranges these loans through select lenders in a wholesale network across 41 markets, including Washington, D.C. Lenders review every file individually, and nothing below is a commitment to lend.

What Does Combining a First Mortgage and a HELOC Actually Mean?

Combining means one new loan pays off two existing liens at closing. The old first mortgage is released, the HELOC is paid off and closed, and a single new first lien replaces both. You end up with one loan secured by the property instead of two.

A HELOC is a revolving line secured by equity. The CFPB’s HELOC guidance describes it as open-end credit you can borrow against repeatedly, with a draw period followed by a repayment period. That open-end feature is why the payoff has an extra step. A closed-end loan is paid off and done. A line has to be paid off and then formally closed, or the borrower can keep drawing on it.

“Conventional” in the title usually means a standard agency-style refinance. Most investors reading this are holding rentals, so this article covers the general mechanics and then applies them to the DSCR cash-out route, which is how most investor files are structured.

How Is the Maximum New Loan Calculated?

The maximum new loan is value times the program’s maximum LTV. Every payoff and financed cost sits inside that number. What is left over is cash to the borrower. If the payoffs exceed the cap, the borrower brings cash to closing or the structure changes.

The line items, in the order they come off the maximum:

Run it as percentages of value. Say a rental appraises at 100% of value. Assume a first mortgage at 55% of value, a HELOC balance at 12%, and financed costs near 2%. Those are modeled assumptions, not market data. Under a 75% cash-out ceiling, the payoffs and costs use up 69% of value, which leaves roughly 6% of value as cash. On short-term-rental collateral with a 70% ceiling, the same stack leaves about 1%. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

The HELOC balance is what gets pulled out of the cash. Every point of value sitting in the line is a point the refinance cannot return.

What Are the Steps From Payoff to Funding?

Underwriting a combine follows a set sequence of six steps, and most delays come from the first two.

1. Pull both payoff statements. The first-mortgage payoff and the HELOC payoff each include accrued interest through the payoff date. Balances on the statements will differ from what you remember.

2. Sign the request to close the line. Title wants written authorization to close the HELOC. If the line is paid but not closed, a second lien can stay of record, and draws can continue through special checks or a card.

3. Order the appraisal. Value sets every ratio. On investor files, the appraisal usually includes a rent schedule (the 1007 form for single-family) or an operating income statement (the 1025 form for 2-4 units).

4. Test the combined payoff against the cap. First mortgage plus HELOC plus financed costs must fit under the maximum LTV for the property type and transaction.

5. Document the HELOC’s history if you want it treated favorably. The file may need the purchase settlement statement and the HELOC transaction history showing what the money was used for and whether any draws came later.

6. Fund and release. Title pays off both liens. Any remainder goes to the borrower. A shortfall means the borrower brings cash.

Skipping step 2 is the quiet failure. Files get stuck at title when a payoff goes through but the line is never closed.

How Do DSCR Programs Treat the HELOC Payoff?

On a DSCR cash-out, the payoff of a HELOC is part of the combined balance that has to fit under the cap. Across most of Lendmire’s wholesale network, a standard rental tops out around 75% LTV on a cash-out refinance, and short-term-rental collateral caps at 70%. About 6 months of seasoning is the common expectation on a recent purchase. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Two other items matter on the DSCR side.

First, the new loan is the debt the rent has to cover. DSCR compares monthly rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues. Combining a large HELOC into the new first lien enlarges that obligation. Coverage that cleared easily on the old first mortgage alone may land near the baseline once the HELOC balance is added. A 1.00 coverage ratio is where select programs start, not a universal standard. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. See the complete DSCR loans guide for how coverage works across the network.

Second, clearing 1.00 is a coverage test, not a profit figure. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.

Credit and reserves follow the usual DSCR rules. A 620 floor exists in parts of the network, most programs want around 660, and 700 or better opens the strongest leverage tiers. Reserves commonly run around 6 months of PITIA, though the requirement varies by lender, leverage, loan size, and transaction type, and it steps up on larger loans. Loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders). Business-purpose DSCR loans are reviewed differently from owner-occupied mortgages, and qualification runs primarily on property-level rental income covering the payment, subject to lender guidelines.

Does the Label Change the Math? (Cash-Out vs. Rate-and-Term)

Yes. Paying off a HELOC usually triggers cash-out treatment, and cash-out carries lower leverage caps than a rate-and-term refinance. The label matters more than the amount of cash that comes back.

For context, agency rules draw the line sharply. Fannie Mae’s Selling Guide allows only subordinate liens used to purchase the property to be paid off in a limited cash-out refinance. A HELOC used for anything else turns the deal into a cash-out. That is agency context only. DSCR programs set their own treatment, and lenders in the network differ on how they classify a purchase-money HELOC.

The practical edge cases:

• Purchase-money line, never redrawn. Some programs may treat the payoff as rate-and-term. Settlement statement and transaction history decide it.
• Line used for a down payment on a different property, or drawn later. Treat it as cash-out.
• Line secured by a different property. That is a seasoning and sourcing question, and lenders handle it as an exception case rather than a standard one.
• Line near the end of its draw period. Payments can jump when repayment starts, and the CFPB notes that some borrowers must repay the full balance at once. This is a common reason investors refinance.

What If the HELOC Stays Open?

If the line stays open, the lender counts it in combined loan-to-value, and a HELOC is generally counted at its full credit limit, not the drawn balance. An undrawn line still takes up room under the cap. The second-lien holder would also have to agree to sit behind the new first mortgage.

For that reason, many investor programs simply require payoff. Keeping the line open is also harder on a rental file because the combined limit eats leverage that cash-out would otherwise use.

When Does Combining Not Make Sense?

Combining costs you the old first mortgage’s terms. If the existing first mortgage is a good one, replacing it just to fold in a small HELOC is a poor trade. This is a genuine judgment call. The consolidation is tidier, but the terms you give up may be worth more than the tidiness. Lendmire’s piece on refinancing when you have a low first mortgage covers that tradeoff directly.

Other cases where combining tends to fail:

• The HELOC balance is small relative to the first mortgage.
• Financed costs would eat most of the cash back.
• The combined payoff pushes the DSCR ratio toward the baseline.
• The appraisal comes in below the assumed value, and the shortfall is larger than the borrower expected.
• The property is held in an LLC and the investor was planning to roll the equity into a new HELOC. Lendmire’s investment HELOC can be held only by an individual or a revocable trust, so an LLC-held rental often needs the DSCR refinance route instead, subject to lender program eligibility.

What Does the Investment HELOC Alternative Look Like?

The ceiling is 70% CLTV on an investment property, with a 700 minimum credit score and a maximum line of $500,000. It runs a 5-year draw followed by a 25-year repayment period, at least 75% of the line is drawn at closing, and pricing floats during both periods. It is available in Lendmire’s 16 full-service states only, which is narrower than the DSCR footprint.

Lines at or below $500,000 ordinarily run automated valuation, and a full appraisal is available on request. A line above $500,000 is not available on investment property. Whether this beats a combine depends on the first mortgage’s terms, the leverage you need, and how the property is vested.

Key Terms Defined

HELOC: A revolving line of credit secured by the equity in a property, with a draw period followed by a repayment period.

CLTV: Combined loan-to-value, which counts every lien on the property against its appraised value.

Cash-out refinance: A refinance where the new loan exceeds the payoff of existing liens and costs, with the difference paid to the borrower.

Payoff statement: A lender’s written figure for what it takes to retire a loan on a given date, including accrued interest.

DSCR: Debt service coverage ratio, which compares a property’s monthly rent to its full monthly obligation.

Seasoning: The minimum time a borrower must have owned the property before a cash-out is available.

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.

If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Reach the team at 828-256-2183 or request a quote.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) arranging home equity lines of credit — primary-residence, second-home and investment-property lines — through a wholesale lending network in its 16 full-service states. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – What is a home equity line of credit (HELOC)?

2. Fannie Mae Selling Guide – Limited Cash-Out Refinance Transactions