The Quick Read: Your maximum loan is the lesser of two numbers. One is the appraised value times the program’s leverage cap. The other is the loan size your documented income supports. The new loan must also cover your payoff and closing costs, with no meaningful cash back to you.
- Bank statements, not traditional personal-income documentation, usually carry the income side for a 1099 contractor. Programs typically use 12 months of business or personal statements and average the deposits.
- Loan amounts typically run from $125,000 to $3,500,000, and lenders commonly want about 6 months of reserves.
- Investment-property cash-out tops out around 75% LTV. Treat that as the line where cash-back files stop, and expect leverage on a rate-and-term to vary by lender, credit, and loan size.
- Primary residences get up to 90% LTV on purchase and rate-and-term. That figure never applies to a rental.
- Taking real cash out changes the transaction type and lowers your ceiling.
What Rate-and-Term Means on a Rental
A rate-and-term refinance replaces your current loan with a new one, and you walk away with no meaningful cash. The point is to change the loan’s pricing, term, or structure. It is also the usual exit from a bridge or hard-money loan once a rental is stabilized.
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 15, 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 15, 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.
The new balance can include your payoff and the closing costs. Beyond that, extra cash to you pushes the file toward cash-out. Where exactly that line sits is lender-specific, so ask before you size the loan up “just a little.”
The difference matters because the two transaction types carry different ceilings. On an investment property, cash-out generally tops out around 75% LTV. A rate-and-term file is a cleaner risk for the lender, since no cash leaves the deal. That is why it typically gets more room.
Lendmire’s comparison of rate-and-term versus cash-out refinances on DSCR loans covers the split in more detail.
Why 1099 Status Changes the Paperwork
A 1099 contractor’s tax return often understates real cash flow. Write-offs for vehicles, equipment, home office, and supplies shrink the bottom line. A conventional lender looks at that bottom line and sizes you down.
Bank-statement programs read the same business from a different angle. Across the wholesale network Lendmire places files with, the lender reviews 12 months of statements, business or personal. It averages the deposits and applies its own expense factor. The result is qualifying income that tracks how money actually moves through your accounts.
Expense factors differ from lender to lender. Do not assume a universal formula. One program may treat your deposits more generously than another, which is why comparing several matters.
A rental has a second path. DSCR loans qualify the property on its rent against the full monthly obligation instead of your personal income. They can suit a 1099 contractor with heavy write-offs and a stabilized rental. Lendmire’s complete DSCR loans guide covers that route, and investor leverage guidance belongs there.
Both paths are underwritten individually. A file is reviewed on documented income under the applicable program, subject to lender guidelines. Credit, reserves, title, and insurance are all still reviewed.
The Borrowing Formula, Step by Step
Here is how a lender actually sizes the loan. Walk through it in this order.
1. Start with the appraised value. The appraisal, not your purchase price or your own estimate, is the number that counts.
2. Apply the leverage cap. Multiply value by the cap for your credit, loan size, and property type. This is your value ceiling.
3. Add up what you need. That is your payoff balance plus closing costs and prepaids. A rate-and-term loan has to fit inside the ceiling.
4. Test the income ceiling. The lender checks whether your averaged deposits, after the expense factor, support the new obligation. If they do not, the loan is sized down or the file looks at another program.
5. Check the loan-size band. Programs typically want $125,000 or more. Larger balances often step down in leverage and ask for stronger credit.
6. Confirm reserves. Lenders commonly look for about 6 months of the housing payment in liquid funds.
Your maximum is whichever of steps 2 and 4 is lower. The step 3 amount is your need. If need is below the maximum, you are fine. If need is above it, you bring cash to closing or restructure.
Worked Examples: Which Limit Hits First
These are modeled scenarios, expressed in percentages and ratios, not market data.
Scenario one: room to spare. Picture a rental whose payoff balance is about 60% of appraised value. Even with closing costs rolled in, the new loan sits well below any reasonable investment-property cap. Value is not the problem here. The question is whether your deposits support the loan, and for most contractors with steady statements, they do.
Scenario two: the cap binds. Say you bought with a bridge loan, put little down, and your payoff is about 80% of value. Use the 75% investment cash-out ceiling as a conservative planning line until a lender confirms the rate-and-term figure for your file. You would be several points of value short before closing costs. You would either bring cash, wait for the property to appreciate, or look for a lender whose rate-and-term cap is higher.
Scenario three: income binds. Imagine a contractor whose deposits ran lumpy through the year. The appraisal supports a large loan, but the averaged income after the expense factor supports less. The loan gets sized down to what the deposits carry. A different program, with a more favorable expense factor or a stronger 12-month stretch of statements, may produce a larger number.
Scenario four: too small. If your payoff is under roughly $125,000, you may sit below the typical loan floor. A smaller balance narrows the field of programs. Consider whether the refinance still pays for itself.
| Symptom | Binding limit | What to try |
|---|---|---|
| Payoff near or above the cap | Leverage | Bring cash, wait, or ask lenders |
| Value is high, loan comes back small | Income | Compare programs and expense factors |
| Balance under the floor | Loan size | Ask whether the refinance still makes sense |
| Short on liquid funds | Reserves | Document more assets |
Edge Cases Where the Rule Bends
You live in part of the property. Everything above assumes you do not occupy the rental. 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.
A bank-statement loan on a pure rental works the same way. If you move into one side of a duplex, the file becomes owner-occupied and is treated as a consumer mortgage with consumer disclosures. The leverage then follows primary-residence rules, up to 90% LTV on a rate-and-term. That is a different transaction with different paperwork, so do not mix the two. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The federal rule text points to a bright line. If you expect to occupy the property for more than 14 days in the coming year, the business-purpose treatment generally does not apply, per the commentary to 12 CFR 1026.3 on eCFR. Rental credit for a property you will not occupy is deemed business purpose, which is why disclosure timing differs by occupancy. The CFPB’s page on exempt transactions lays out the purpose factors a lender weighs.
Cash creeping in. A contractor refinancing a rental sometimes wants a few extra thousand for equipment or taxes. That small request can reclassify the loan as cash-out, with the lower 75% ceiling and possible seasoning. If you want real cash, say so up front so the file is structured right from the start.
Short-term rentals. Rental income evidence varies by program, and short-term rental files usually carry lower leverage and want some hosting history.
Larger loans. Leverage steps down as balances grow, and credit minimums rise. Close to the top of the $3,500,000 range, expect more scrutiny and less flexibility on the value ceiling.
Titling in an LLC. Holding the rental in an LLC is possible on many files, subject to lender program eligibility. Entity documents are then part of the file, and moving title mid-refinance can complicate things. Lendmire’s piece on refinancing for LLC-titled borrowers goes deeper.
Existing prepayment penalty. Check the loan you are paying off. A penalty window that is still open can erase the savings from the refinance.
Exiting a bridge or hard-money loan. This is a common reason a contractor does a rate-and-term on a rental. It works best when the property is stabilized and the work is finished. A half-finished property gives the appraiser little to support.
Key Terms Defined
Rate-and-term refinance: a new loan that pays off the old one and changes pricing, term, or structure without meaningful cash back to you.
LTV (loan-to-value): the loan balance divided by the appraised value, shown as a percentage.
Bank-statement loan: a program that is reviewed around averaged deposits from 12 months of statements instead of traditional personal-income documentation.
Expense factor: the percentage of deposits a lender treats as business costs before counting the rest as income.
Reserves: liquid funds, often about 6 months of the housing payment, that a lender wants left over after closing.
Seasoning: the waiting period a lender wants between buying or refinancing a property and the next transaction.
Prepayment penalty: a fee some loans charge if you pay them off early.
What the Decision Looks Like in Practice
Start with the payoff, not the dream number. Ask what balance you need to cover, then ask what the leverage cap on your file really is. Many 1099 contractors lose weeks chasing a headline leverage figure that was written for a primary residence.
Then test both income paths. A contractor with two strong years of deposits and a modest rental often does fine on bank statements. A contractor whose business income is uneven but whose rental is stable and well-rented may find the property-income route cleaner.
Finally, price in the full cost of the change. That includes closing costs, any prepayment charge on the old note, and the loss of any favorable existing loan. A refinance that trims the monthly obligation by a little but costs a lot to execute is rarely worth it.
Next Step
Lendmire is a broker that arranges financing through select lenders in its wholesale network. Every file is underwritten individually, and nothing here is a commitment to lend.
Availability for owner-occupied bank-statement files depends on the state, so confirm yours before you plan around a figure.
This is general education, not legal or tax advice. Tax treatment can depend on how the funds are used and how the property is held, so keep clear records and speak with a qualified tax professional before relying on any deduction. For questions about your own situation, consult a qualified attorney or CPA.
Frequently Asked Questions
Can I borrow more than I owe on the rental?
Only a little, and only for costs. A rate-and-term loan covers your payoff plus closing costs and prepaids. Anything meaningfully beyond that is cash-out, which on an investment property generally tops out around 75% LTV and may add seasoning.
Does my 1099 income count on this refinance?
Yes, though through bank statements, not traditional personal-income documentation. Programs typically review 12 months of business or personal statements and average the deposits with a lender-specific expense factor. The file is reviewed on documented income under the applicable program, subject to lender guidelines.
What if my appraisal comes in low?
The value ceiling drops with it, because the cap applies to the appraised value. If your payoff was already close to the cap, you may need to bring cash or wait. A low appraisal does not change your income, but it can shrink your maximum loan.
Can I use this loan if I live in one unit?
That makes it an owner-occupied file, which is a different transaction from a rental refinance. Owner-occupied files follow consumer-mortgage rules, and primary-residence leverage can reach up to 90% LTV on a rate-and-term. Tell your broker about occupancy at the start. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Do I need an LLC?
No, not necessarily. Many files close in a personal name. When a rental is held in an LLC, eligibility is subject to program terms, and the lender will ask for entity documents.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. eCFR, 12 CFR 1026.3 (exempt transactions)
2. CFPB, Regulation Z section 1026.3 (exempt transactions)
This article is part of Lendmire’s self-employed mortgage guides — full qualification details, guidelines, and scenarios live on the program page.
Related reading: 1099-Only Loan vs Rate-and-Term Investment Refinance · How to Refinance on Bank Statements After Buying Out a Partner · How to Document Deposits and Invoices on a Bank Statement Loan Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.