The Quick Read: A conventional cash-out refinance can replace a private money loan only if you pass borrower-level underwriting on income, credit and debts, and only after the property has the value, equity and waiting period the new lender wants. If your income file is thin, a DSCR cash-out is often the more practical exit.
- Conventional underwriting qualifies you personally, using income, traditional personal-income documentation and debt ratios. DSCR underwriting looks at the property’s rent.
- A cash-out refinance sizes on appraised value after the rehab, and cash comes back only after payoff and costs.
- Waiting periods are lender policy. Many lenders count about 6 months, and some are stricter on a recently bought property.
- Private money is short-term and interest-only by design. Plan your exit before you sign, not when the maturity date arrives.
- Across Lendmire’s wholesale network, DSCR cash-out refinances top out around 75% LTV on standard rentals, subject to lender guidelines.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old loan and puts the leftover equity in your hands as cash.
Rate-and-term refinance: A new loan that pays off the old one and covers costs, but returns no meaningful cash to you.
Seasoning: The waiting period a lender wants between a purchase or loan and the refinance. It is lender policy, not a law.
Private money: A short-term loan from an individual or small lender, secured by the property. It is priced for speed and flexibility, not for holding long term.
DSCR (debt service coverage ratio): Monthly rent divided by the full monthly payment on principal, interest, taxes, insurance and any HOA dues (PITIA).
LTV (loan-to-value): The loan balance as a percentage of the property’s appraised value.
Why Private Money Gets Offered, and What the Exit Looks Like
Private money is offered because it solves a problem a bank cannot. The property may need work, the purchase may need to happen on a tight schedule, or the file may not fit a standard box. Private loans typically run 6 to 18 months, interest-only, and they are underwritten on the property, the plan and the exit. Terms vary by lender, property and experience.
That design is the reason for the exit question. A private loan is a bridge, and a bridge needs a far bank. A conventional cash-out refinance is one far bank. A DSCR cash-out is another. Selling is the third.
If you already hold the offer, the decision is not private money versus conventional in the abstract. It is whether you will pass the next lender’s tests by the time the note matures.
How a Conventional Cash-Out Refinance Treats Your Private Loan
Underwriting is a sequence, and each step can stop the file. Here it is in order.
1. Payoff and new first lien. The new loan pays off the private loan and becomes the first mortgage. The private lien is released at closing.
2. Equity test. The lender leaves part of the equity untouched. The loan has to fit under a leverage cap on appraised value, and cash-out caps are lower than purchase caps.
3. Appraisal. The loan sizes on appraised value, not on what you paid or spent. A rehab that is not finished, or comps that do not support your number, shrinks the loan.
4. Seasoning. Lenders look at how long you have owned the property and how long the loan being paid off has existed. A recent private-money purchase is the situation where this bites hardest. The exact clock varies by lender and program.
5. Borrower qualification. This is the step that decides most files. Conventional lenders want traditional personal-income documentation, assets and credit, then a debt-to-income test across every obligation you carry. A strong rental does not rescue weak personal income.
6. Net proceeds. Payoff, closing costs, reserves and any lender charge come out first. What remains is your cash.
Step five is where self-employed investors with many properties often stall. Write-offs lower taxable income, and every mortgage on your other rentals counts against you. The property can be excellent and the borrower still fails the test.
Cash-Out or Payoff-Only? The Label Changes the Rules
Whether a refinance counts as cash-out depends on whether money comes back to you at closing. A payoff-only exit, where the new loan simply retires the private note and covers costs, is often treated more gently. Leverage caps and waiting periods are usually looser, though it varies by lender.
Take cash back and the stricter cash-out rules apply. Some owners aim for payoff-only to get cleaner terms, then pull equity later. Others want the cash now to fund the next purchase. Pick one before you apply, because switching mid-file can reset the underwriting.
One more point. Hard money and private money sit differently on a refinance. In Lendmire’s own hard money program, a cash-out or rate-and-term refinance goes up to 65% of value, varying by lender, property and experience. That is a short-term bridge product. It is not the long-term loan you are trying to reach.
Where the Standard Path Breaks
Conventional exits fail in predictable places. These are the named edge cases.
- The lender balks at the private loan. Not every traditional lender is comfortable refinancing a recent private or hard money note. Some will, with conditions. Many non-QM lenders are more flexible.
- The waiting clock outlasts the note. If the private loan matures before the property is seasoned, you need an extension or another bridge. Both cost money.
- The purchase was financed. Cash-purchase exceptions, where a lender treats a recent all-cash buyer more gently, generally do not apply when private money funded the acquisition.
- The property is in an LLC. Conventional loans generally want a natural person as borrower. Confirm how an entity-held property is treated before you plan the exit. DSCR programs often work with LLC borrowers, subject to program terms.
- Cash-out proceeds go to personal use. That changes the loan’s classification and the rules attached to it. More on this below.
- Property type. DSCR financing is not offered on manufactured homes (single- or double-wide), log homes or barndominiums. Check this before you promise yourself an exit.
Business Purpose: The One Regulatory Point That Matters
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. CFPB examination procedures treat credit used to acquire or improve non-owner-occupied rental property as business-purpose credit.
Two practical consequences follow. First, a checked box is not enough. FDIC examination procedures say a business-purpose statement without documentation of the intended use may be insufficient evidence. Keep records showing where the proceeds went. Second, if you spend cash-out money on personal needs, the classification can change. Doss Law’s business-purpose guide notes that loans to individuals for consumer purposes on 1-4 unit property carry a different set of disclosure and repayment rules.
Tax treatment varies; consult a qualified professional.
Private Money, Conventional and DSCR Side by Side
| Factor | Private money | Conventional cash-out | DSCR cash-out |
|---|---|---|---|
| Underwritten on | Property, plan, exit | You: income, DTI | Property rent vs. PITIA |
| Typical term | 6-18 months, interest-only | Long-term fixed | 30-year fixed spine |
| Personal income docs | Not the focus | Required | Not the focus |
| Entity borrower | Often allowed | Generally natural person | Often allowed |
| Main risk | Maturity date | Failing DTI | Coverage and leverage |
The first row explains almost everything. Private money and DSCR both look at the asset. Conventional looks at you. That is why investors who start with private money and scale quickly often end up in DSCR when it is time to hold.
The DSCR Cash-Out Exit: What the Network Actually Requires
Many investors refinance out of private or hard money into long-term DSCR investor loans once the property is stabilized. Lendmire arranges that path through select lenders in its wholesale network. Here are the typical parameters, all subject to lender guidelines and individual underwriting.
- Leverage: Cash-out refinances top out around 75% LTV across most of the network, on standard rentals. Short-term-rental collateral generally caps cash-out at 70%.
- Seasoning: About 6 months is the common expectation.
- Coverage: A 1.00 ratio is where many select programs start. A separate select-lender path goes 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 or higher unlocks the strongest leverage tiers.
- Reserves: Commonly around 6 months of PITIA, varying by lender, leverage, loan size and transaction type.
- Loan size: Up to $3,000,000 on standard programs, with smaller balances available through select lenders. Above $2,500,000 the network generally holds to 30-year fixed structures.
- Structure: The 30-year fixed is the spine. Extended 40-year terms and interest-only periods are available through select lenders. ARM options exist as well.
A larger down payment, or in a refinance more retained equity, can lift the coverage ratio. It never erases leverage caps, credit floors, reserve rules or property eligibility. The strongest files clear both tests: enough equity and enough rent.
Be careful with what a passing ratio means. DSCR compares rent to PITIA only. Clearing 1.00 is not the same as positive cash flow, because repairs, vacancy, management, utilities and capex sit outside the calculation.
For a deeper walk through how these loans work, see the complete DSCR loans guide.
A Worked Example, Without the Payment Math
Picture a duplex bought with private money and rehabbed. The appraisal comes in well above the purchase price, and the property is fully rented. Coverage clears roughly 1.2x against the full PITIA on a new 30-year fixed. The loan is sized at 75% LTV on a standard rental, and the property has passed the seasoning clock. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The private loan is paid off at closing. Closing costs and any required reserves come out next. What is left is your cash.
Now change one input. Say rent covers the new payment at only about 0.95x. The file is not dead. A select-lender path below 1.00 exists, with leverage and terms adjusted, and qualification stays subject to lender guidelines, credit approval and property review. But the cash you take out will be smaller, and the larger balance may leave the property with thin monthly margin. Run the numbers on the new balance before you take proceeds.
Costs That Shrink Your Cash
A refinance carries closing costs similar to a purchase. Add the private lender’s payoff charges, any extension fee if you ran past maturity, and the reserves the new lender requires. Each reduces net proceeds.
The cost trap is repetition. If you refinance twice because the first exit failed, you pay closing costs twice. Plan the sequence once. Private money in Lendmire’s hard money program carries no prepayment penalty, but not every private lender offers that, so read the payoff terms on any offer you hold.
Documents to Gather Before You Apply
- Payoff statement from the private lender, plus the note and any extension agreements.
- Purchase contract, settlement statement and rehab budget with proof of work completed.
- Current leases and rent roll for a DSCR file. Traditional personal-income documentation and income documents for a conventional file.
- Entity documents if the property is held in an LLC.
- A written statement of how you will use the proceeds.
- Insurance, and statements for reserves.
When Conventional Does Not Fit
If conventional fails on income, you have branches. Pick the one that matches the reason.
| Trigger | Practical route |
|---|---|
| Income or DTI falls short | DSCR cash-out |
| Seasoning not met, note maturing | Extension or short bridge |
| Coverage below 1.00 | Select-lender sub-1.00 path, adjusted terms |
| Property type ineligible | Sale, or keep the bridge |
Unsolicited private money offers deserve a short skeptic’s checklist. Be wary of anyone who asks for fees before any written terms, will not name the lien position, or pushes you to skip an appraisal. The deal should state the term, payoff mechanics and what happens at maturity in writing. If you are still choosing between products, Lendmire’s piece Conventional Cash-Out Refinance for Owners Picking a Loan Type covers the tradeoffs.
Frequently Asked Questions
Can a private money loan be refinanced with a conventional cash-out loan?
Often yes, if you meet the borrower-level tests and the waiting period. Some conventional lenders are cautious about recent private notes, so confirm eligibility before you take the private money.
Does conventional cost less than private money?
Conventional is often lower-cost than private money over a long hold, because it carries a long fixed term instead of a short interest-only bridge. A DSCR refinance can also serve as the long-term replacement. Compare total cost, including closing costs, on your actual file.
How long should I wait before refinancing?
Waiting periods are lender policy, not law. About 6 months is the common expectation for DSCR cash-out across the network, and conventional lenders may be longer or stricter on a recent purchase.
What if my private note matures before I qualify?
Ask the lender about an extension, line up a second bridge, or move to a DSCR program that does not depend on personal income. Start the application well before maturity.
Can I use the cash to buy the next rental?
Yes, and many investors do. Keep records showing the use of proceeds, since the loan is business-purpose. Qualification is subject to lender guidelines and individual underwriting.
Next Steps
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage and your goals. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Nothing here is a commitment to lend.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB
2. FDIC TILA examination procedures
3. Doss Law: business purpose exemption guide
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Investment Property HELOC for Owners Weighing a Cash-Out Refinance · Cash-Out Refinance Above Conforming vs Conforming Cash-Out Plus HELOC · Hard Money vs Lower-Payment Investment Refinance When You Need Cash
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.