The Quick Read: Using your home’s equity for the down payment on a rental means taking a larger mortgage on the home you live in, receiving the difference as cash, and then buying the rental with a separate loan that qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.
- Two loans, two rulebooks. The loan on your home is judged on you. The rental loan is judged mainly on the property’s rent.
- Net cash is smaller than equity. You receive the new loan minus the old payoff minus closing costs.
- Borrowed down payments are a program question. Some rental programs accept documented cash-out proceeds and some do not, so ask before you sign the refinance.
- Plan for typical leverage. Rental purchases usually land at 75%-80% LTV (20%-25% down). Select high-leverage programs reach 85% LTV with roughly a 700+ score.
- Coverage is not profit. A rental can clear its DSCR and still lose money after vacancy and repairs.
How Do the Two Loans Fit Together?
The strategy only works if you treat it as two separate transactions that happen to share one pile of cash. Loan 1 is a cash-out refinance on your own home. It replaces your current first mortgage with a bigger one and pays you the difference. Loan 2 is the purchase loan on the rental, often a DSCR loan.
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
Prefilled with starting assumptions — enter your property’s value, balance, taxes, and insurance for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
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.
DSCR stands for debt service coverage ratio. It compares the rent a property earns to the full monthly obligation on it (principal, interest, taxes, insurance, and any association dues). A DSCR loan applies only to the rental. It cannot refinance the home you live in.
| Factor | Loan 1: Your Home | Loan 2: The Rental |
|---|---|---|
| Collateral | Your primary residence | The rental property |
| Judged mainly on | Your income, credit, equity | Property rent vs. payment |
| What it funds | Cash to you | The purchase price |
| Titled in | Your personal name | Often an LLC, per program terms |
| Arranged by | A residential lender | A DSCR lender in the network |
Lendmire is a mortgage broker, so it arranges the DSCR side. The home refinance is its own file with its own lender, and the two are not one package.
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.
How Much Cash Will You Actually Net?
You net the new loan amount, minus the payoff on your current mortgage, minus closing costs. Equity on paper is never the same as cash in hand. The lender sets how much of the home’s value it will lend against, and closing costs come out of the proceeds or get rolled into the balance.
Here is a modeled example. These are assumptions for illustration, not program figures.
- Assume the home lender will lend up to 70% of the home’s value.
- Assume you currently owe 40% of the value.
- Assume closing costs take about 2% of the value.
Net cash lands near 28% of the home’s value (70 minus 40 minus 2). The calculator on this site can turn percentages like these into dollars as an illustrative estimate.
If you own the home free and clear, there is no payoff step. The whole new loan, minus costs, becomes cash. That sounds ideal. It also means you are putting a brand-new lien on a home that had none.
Agencies treat this kind of loan conservatively. Fannie Mae’s eligibility matrix caps owner-occupied cash-out refinances below purchase limits. That is only a contrast. Your home refinance follows its own lender’s rules, and your rental purchase follows a different set.
Can the Cash Cover the Rental You Want?
Back-solve from the cash to the price. Most rental purchases across the network land at 75%-80% LTV. LTV, or loan-to-value, is the loan as a share of the property’s value. That means 20%-25% down on an investment purchase. Select high-leverage programs reach 85% LTV (15% down), usually with roughly a 700+ credit score.
Continue the modeled example. A rental priced about the same as your home, bought at 25% down, needs 25% of its price plus its own closing costs. With cash near 28% of the home’s value, that is about all the cash there is. Nothing is left over for reserves. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
That gap is where most plans get tight. Down payment is only one of three claims on your cash:
1. The down payment itself.
2. Closing costs on the rental purchase.
3. Reserves, meaning liquid money the lender wants to see left over after closing.
Reserves vary by lender, leverage, loan size, and transaction type. On most files they run around 6 months of PITIA, which is the full monthly obligation of principal, interest, taxes, insurance, and dues. Conservative files at modest leverage under $1,500,000 can sometimes see them waived. Loans above that size typically step up to about 9 months.
A smaller or lower-priced rental often fits the cash better than a stretch purchase. A larger down payment also lowers the monthly obligation and can lift the coverage ratio. It never erases the leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
What Is the Right Order of Operations?
Refinance the home first and buy the rental second. You want the cash seasoned in your account before you go under contract on the rental. The steps run like this:
1. Check the equity math. Work out net cash using the formula above, with a cushion for a low appraisal.
2. Ask the rental lender about borrowed funds. Do this before you commit to the refinance.
3. Apply for the home refinance. Expect an appraisal, income and asset documents, and title work. It is underwritten on your credit, income, and equity.
4. Wait out the cancel period. Refinances of a primary home carry a short federal right to cancel. The CFPB explains that refinancing borrowers can cancel, while purchase-money borrowers have no such right. Funds generally are not released until that window closes. Build it into your purchase contract dates.
5. Park and document the cash. The settlement statement from the refinance is your paper trail from loan proceeds to your account.
6. Go under contract and apply for the rental loan. The DSCR lender reviews the property’s rent against its payment and your credit profile.
7. Close on the rental. Keep a clean bank trail from the proceeds to the closing table.
What if the appraisal comes in low? Your cash shrinks, because the lender lends against appraised value, not your estimate. The plan should still work with a lower number. If the rental needs every dollar of the optimistic cash figure, it is too tight.
Will the Rental Lender Count Borrowed Money as Your Down Payment?
It depends on the program, and this is the question that decides whether the plan works at all. Across the network, some programs accept documented loan proceeds as down payment money. Others cap the borrowed share or want some unborrowed, seasoned cash in your accounts. Treatment varies by lender and leverage tier.
Ask three things before you draw a dollar:
- Do documented cash-out proceeds count as the down payment?
- Does any portion have to come from your own seasoned funds?
- Do reserves need to be separate from the down payment money?
The same dollars generally cannot do two jobs. Cash used for the down payment usually cannot also count as reserves. A lender that accepts borrowed funds for one purpose may still want separate liquid assets for the other.
Documentation matters too. The lender will want to see where the money came from and where it went. The settlement statement, the bank deposit, and the purchase closing statement should line up without gaps.
What Does the Rental Loan Look At?
A DSCR purchase loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. It is not a test of your traditional employment income. Here is what the file still turns on, based on what most programs in the network want:
- Coverage. A 1.00 ratio is where many select programs start, meaning rent roughly equals the full monthly obligation. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
- Credit. A 620 floor exists in parts of the network. Most programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Leverage. Purchases typically run 75%-80% LTV. Cash-out on an existing rental tops out around 75% LTV, with about 6 months of seasoning as the common expectation.
- Loan size. Standard programs run up to $3,000,000. Above $2,500,000 the network generally holds to 30-year fixed structures.
- Property type. Single-family homes, condos, and small multifamily are common fits. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs.
- Vesting. You can often buy the rental in an LLC, subject to lender program eligibility. Your primary home stays in your personal name.
The 30-year fixed is the spine of the product line. Extended terms, interest-only periods, and adjustable structures exist through select lenders for investors who want them. For the full picture, see Lendmire’s complete DSCR loans guide.
What Does the Monthly Picture Really Look Like?
Your household takes on more debt before it takes on a tenant. The payment on your home goes up after the refinance. The rental then adds its own carrying costs. If the rental sits vacant, you are carrying both.
Do not confuse coverage with profit. DSCR compares rent to the full monthly obligation only. A property that clears 1.00 can still lose money. Repairs, vacancy, management, utilities, and capital expenses all sit outside the calculation.
Run a before-and-after check in three steps:
1. Write down your household’s monthly obligations today.
2. Add the higher home payment from the refinance.
3. Add the rental’s full carrying costs with zero rent coming in.
If you can still carry that, the plan has a safety margin. If you cannot, a small vacancy becomes a problem for your own house, because your home secures the cash you used to buy the rental.
The rental loan does not hinge on your personal debt-to-income ratio. A bigger home payment can still crowd you out of future loans that do test personal income. Investors who plan to keep buying should think about that before choosing the biggest possible cash-out.
Where Does the General Rule Break?
The steps above describe the standard path. These edge cases change it.
You owe nothing on the home. There is no payoff, so the whole new loan minus costs is cash. The new lien is the whole risk.
You just bought the home. The home refinance carries owner-occupancy statements. If you plan to move out and rent that home soon, tell the lender the truth about your plans. Misstating occupancy is a serious problem, and a lender can ask questions when the timeline looks short.
Your existing mortgage is cheap. Replacing it with a bigger loan means giving up whatever terms you have today. A home equity line, which draws cash as needed and leaves your first mortgage in place, can fit better when you only need a modest amount.
The cash must do two jobs. Down payment and reserves compete for the same dollars. Size the refinance with both in mind.
You bought a property type the network does not offer. Manufactured homes, log homes, and barndominiums are not offered through the DSCR programs described here. Check the property type before you plan around it.
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.
Should You Use a Cash-Out, a HELOC, or Your Rental’s Equity?
The right tool depends on how much cash you need and what you already own.
| Option | How it works | Choose it when |
|---|---|---|
| Cash-out on your home | Replaces first mortgage, pays you cash | You need a large sum and accept a new first mortgage |
| Home equity line | Leaves first mortgage, draws as needed | You need less cash or want flexibility |
| Cash-out on an existing rental | DSCR file retested at larger loan | You own a rental with equity and enough seasoning |
The third route keeps debt off your home. It runs at about 75% LTV on a standard rental (70% on a short-term rental), with about 6 months of seasoning. The rental must clear coverage at the larger loan amount. For the wider picture on this strategy, Lendmire’s piece Cash-Out Refinance to Buy a Second Home: Using Your Primary Residence’s Value for the Down Payment covers the sizing side. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Who Is This Strategy For?
It suits you when:
- You have meaningful equity and a stable income that can carry the larger home payment.
- The rental’s coverage looks healthy on rent alone, with room for vacancy.
- You have confirmed that the rental lender accepts borrowed down payment funds.
- You can hold reserves after closing.
Skip it, or shrink it, when:
- The rental only works if every dollar of equity goes in.
- The home payment would strain your budget even with a tenant in place.
- The rental lender wants unborrowed cash you do not have.
- You would not want your own home at risk if the rental underperforms.
Key Terms Defined
Cash-out refinance: A new mortgage larger than your current balance, with the difference paid to you as cash.
Net cash proceeds: The cash you actually receive, after the old loan is paid off and closing costs are taken out.
LTV (loan-to-value): The loan amount divided by the property’s value, expressed as a percentage.
DSCR (debt service coverage ratio): The property’s rent divided by its full monthly obligation. It measures coverage, not profit.
PITIA: Principal, interest, taxes, insurance, and association dues. This is the full monthly obligation on a property.
Seasoning: The waiting period a lender wants after an event, such as owning a property for about 6 months before a cash-out.
Reserves: Liquid funds a lender wants you to hold after closing, often measured in months of PITIA.
Frequently Asked Questions
Can I use a primary-home cash-out for a rental down payment?
Often yes, but it depends on the rental lender’s program. Some programs accept documented loan proceeds as down payment money, while others cap the borrowed share or want some unborrowed cash. Ask before you refinance.
Does a DSCR loan work for refinancing my own home?
No. DSCR loans apply only to non-owner-occupied investment properties. Your own residence needs a conventional-style owner-occupied loan underwritten on your personal profile.
How much down payment will the rental require?
Most rental purchases in the network land at 75%-80% LTV, meaning 20%-25% down. Reserves are separate and commonly run around 6 months of PITIA.
Does clearing 1.00 mean the rental makes money?
No. The ratio compares rent to the full monthly obligation only. Vacancy, repairs, management, utilities, and capital expenses all sit outside the calculation.
Can I buy the rental in an LLC?
Often, subject to lender program eligibility. The primary home refinance stays in your personal name.
If You Are Ready to Run the Numbers
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 DSCR financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Program terms are subject to lender guidelines and are not a commitment to lend.
About Lendmire
A non-QM mortgage broker (NMLS# 2371349), Lendmire arranges DSCR financing for real estate investors in 41 markets — 40 states plus Washington, D.C. Because deals are underwritten primarily on property cash flow rather than personal income documentation, the structure suits self-employed buyers and entity-owned portfolios. Lendmire places loans through wholesale investor lenders; it is not a direct lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Eligibility Matrix
2. CFPB: How long do I have to rescind?
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 Buy a Rental With a Cash-Out Refinance, Then Finance It Later · Should You Take the Maximum Cash-Out Refinance on a Paid-Off Rental? · Is a Cash-Out Refinance the Answer When a HELOC Falls Short?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.