The Quick Read: There is no special takeout product for this. You replace a seller-carried note with an ordinary new first-lien super jumbo DSCR loan, and a title company pays the old note holder at closing. The new loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.
- Appraised value must support the payoff at the leverage the loan size allows (80% on a purchase or rate-and-term up to $1,000,000, stepping down to 60% on review at the top).
- Rent has to cover the new, fully amortizing payment. A 1.00 coverage ratio earns full leverage through select programs.
- Credit starts at a 660 floor, and 700 above $3,000,000.
- The old note holder must provide a payoff statement and release the lien.
- If cash comes back after payoff, it is a cash-out and the tighter cash-out ladder applies.
Seller notes are built to be temporary. The seller agreed to carry the paper so you could buy. Now the balloon date is coming, and you want a long-term loan sized for a high-value rental. Here is how that swap works, step by step.
DSCR Calculator
Run the 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 own rent or nightly figures, taxes, insurance, and HOA 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. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Why Does a Seller Note Have to Go?
A new lender funds in first position or not at all. Liens follow “first in time, first in right,” as Nolo’s explanation of subordination agreements puts it: the first lien recorded gets paid first from foreclosure proceeds. A seller second lien left in place would sit behind the new loan only if its holder signed a recorded subordination. Most holders won’t. Paying the note off is usually cleaner.
The balloon is the other reason. The CFPB’s balloon payment explainer says balloon loans generally run shorter terms than traditional mortgages, between 5 and 10 years, and that the final payment is generally more than twice the average monthly payment. It also tells borrowers to plan how they will make that payment. Refinancing is the plan.
How Does the Payoff Work, Step by Step?
The payoff runs in a set order. Here is how a file moves.
1. Pull the note package. You need the promissory note, the recorded mortgage or deed of trust, and the payment history. Find the maturity date and any prepayment clause.
2. Request a payoff statement early. This is the holder’s written figure for a specific date. It differs from your statement balance because it adds per-diem interest, which is interest accrued per day. An unresponsive holder is the classic stall.
3. Check for a prepayment penalty on the old note. That is a fee for paying a loan off early. Not every note has one. Read the note before you set a plan.
4. Order the appraisal and rent opinion. The new lender values the property and estimates market rent. Above $2,000,000, two appraisals are required, subject to underwriting.
5. Run coverage on the new payment. Rent is divided by the full monthly obligation: principal, interest, taxes, insurance and any HOA dues.
6. Review the borrower and entity. Credit, identity, reserves and entity papers are checked. Entity papers must match title, subject to lender program eligibility.
7. Clear title. Confirm the seller note is recorded, the lien position is clean, and no junior liens sit behind it.
8. Close. Title wires the payoff, records the release, and sends any surplus to you.
Four things decide the outcome: appraised value against the payoff, rent coverage on the new payment, ownership history, and the cooperation of the note holder.
What Tests Does the New Loan Have to Pass?
The new loan has to pass three tests: equity, rent coverage, and credit and reserves. Across the wholesale network Lendmire places files with, those tests are applied to the property first and the borrower second.
Equity. Leverage steps down as the loan grows. Here is the ladder for a DSCR of 1.00 or higher, with every figure a ceiling through select wholesale programs, subject to underwriting:
| Loan size | Purchase | Rate-and-term | Cash-out |
|---|---|---|---|
| $150K–$1M | 80% | 80% | 75% |
| $1M–$1.5M | 75% | 75% | 70% |
| $1.5M–$2M | 75% | 75% | 60% |
| $2M–$3M | 75% | 75% | 60% |
| $3M–$4M | 65% | 65% | — |
| $4M–$6M | 60% on review | 60% on review | — |
| $6M–$10M | 60% on review | 60% on review | — |
These are loan amounts, not property prices. Multiply price by leverage first, then read the band for that loan. Above $4,000,000, every request is reviewed case by case before submission.
Coverage. A 1.00 ratio earns full leverage. Coverage from 0.75 to 0.99 is a real path through select programs to $2,000,000, though LTV and terms adjust, subject to underwriting. Interest-only for 120 months is available on 30- and 40-year terms to 75%, qualified on interest, taxes and insurance alone at 0.75 coverage or better.
Credit and reserves. The floor is 660 on loans to $3,000,000. Above $3,000,000 the super jumbo overlay raises it to 700, with 0x30x24 housing history, 48-month event seasoning, citizens and permanent residents only, no rural property, and ten acres maximum on a non-rural one. The top leverage in the $1,000,000 to $2,000,000 bands needs higher scores (700 and 720 respectively). Reserves run 6 months on the subject property, 12 for first-time investors, and cash-out proceeds never satisfy them.
Why Does Coverage Often Fall at Payoff?
Because seller notes tend to carry soft payments, and your new loan will not. Many seller notes are interest-only or built on a long amortization with a balloon at the end. Swapping that for a fully amortizing loan raises the monthly obligation, so the coverage number often drops.
Picture a $4,000,000 property with a seller note that has run its course. Say you ask for 65% leverage, which sits in the $2,000,000 to $3,000,000 band, and rent covers the new payment at about 1.1x. That clears the 1.00 benchmark. Now take the same building at 75% leverage, and the larger payment can push coverage toward 0.95x. That is not a dead end. Select programs review 0.75 to 0.99 files at reduced leverage, or an interest-only structure can lift coverage. Run the coverage on the new payment before you commit to the payoff date. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Payoff-Only or Cash-Out?
If no cash comes back after the payoff and closing costs, the file is generally treated as a rate-and-term refinance. If cash comes back, it is cash-out, and the lower cash-out ladder applies. Cash-out proceeds are unlimited at or below 60% LTV, capped at $1,500,000 above 60%, and not available above $3,000,000. Credit of 680 or below gets no cash-out above $1,500,000.
For a standard long-term rental, 75% is the cash-out ceiling on loans to $1,000,000. Keeping the file payoff-only often preserves more leverage. That is a real reason to size the new loan to the payoff and stop.
Seller Note, Bridge Loan or Super Jumbo DSCR Takeout?
| Factor | Seller note | Bridge loan | Super jumbo DSCR |
|---|---|---|---|
| Who sets terms | Seller, negotiated | Short-term lender | Program guidelines |
| Reviewed on | Seller’s comfort | Varies | Property rent, plus credit |
| Exit risk | Balloon date | Maturity date | Long-term, with interest-only option |
| Flexibility | High, one-off | Moderate | Fixed by size ladder |
The DSCR route is the long-term one, and the better fit when the property rents well and you want a longer runway.
Where Does the Standard Process Break?
Several edge cases change the plan. Most trace to title or to a holder who will not cooperate.
- Holder won’t accept a payoff or subordinate. The new lender needs first position. You may need to negotiate, or pay the holder what the note requires.
- Land contract or contract for deed. Title may not have transferred, and the contract may be unrecorded or defectively recorded. Counsel or probate may be needed before any lender can fund.
- Deceased holder. The estate must be able to deliver a payoff and a lien release.
- Several notes or properties. Each holder needs its own payoff statement, and any one can hold up the file.
- Subject-to purchases. The new loan pays off the seller’s old mortgage. What matters is getting a payoff statement and clearing title.
- Short-term rentals. Coverage must be 1.00 or higher, with loans to $2,000,000, income at 80% of gross from twelve months of operating history on a refinance, and experienced investors only. Municipal permission must be documented for the specific property. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
- Rural or oversized land. Above $3,000,000: no rural property, and no more than ten acres on a non-rural one.
Is This a Consumer Loan Under Federal Rules?
Usually not. 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. The CFPB’s Truth in Lending Act materials list credit extended primarily for a business purpose as exempt from Regulation Z. The loan’s purpose controls, not the label on the property.
Proving Payment History With No Bank Servicer
Underwriters want evidence that you paid the seller on time. Without a servicer’s statements, you build the record yourself:
- Bank statements or cancelled checks showing each payment.
- A payment ledger signed by the note holder.
- The payoff statement itself, which shows the balance and any arrears.
Gather these before you apply. Gaps in history draw questions about housing payment record, and the super jumbo overlay wants 0x30x24 above $3,000,000.
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.
Key Terms Defined
Seller-carried note: A loan the seller of a property makes to the buyer, secured by the property.
Balloon payment: A large final payment due when a loan reaches maturity without fully paying off.
Payoff statement: The holder’s written payoff figure for a specific date, including per-diem interest.
Per diem: Interest that accrues each day between the statement date and the payoff date.
Rate-and-term refinance: A refinance that replaces the old loan without taking cash out.
DSCR: Debt service coverage ratio, meaning rent compared with the full monthly obligation.
Super jumbo: A loan size above the standard $3,000,000 limit, which in Lendmire’s network runs to $10,000,000.
Seasoning: The ownership time a lender wants before it will refinance.
What Do You Do Next?
Work backward from the balloon date. Request the payoff statement and read the note for prepayment terms. Confirm the lien is recorded and clean. Run coverage on a fully amortizing payment, not the old one. Then pick the transaction type that preserves leverage. If you want the longer-term angle on selling inside a long-term note, Lendmire’s guide How to Plan a Sale Inside a Ten-Year Super Jumbo DSCR Note picks up where this one leaves off. For the full program picture, read the complete DSCR loans guide.
If you hold the note rather than owe it, this page is the wrong one. You are the lender in that deal, and your options run through buybacks or note sales instead.
Frequently Asked Questions
Can a new lender fund behind my seller’s note?
Not in practice. Lenders require first position, so the seller note is paid off at closing or its holder signs a recorded subordination. Payoff is usually the cleaner route.
Is paying off a seller note always a cash-out refinance?
No. If no cash comes back after the payoff and closing costs, the file is generally treated as rate-and-term, which carries higher leverage ceilings than cash-out.
What if the rent does not cover the new payment?
Several paths exist. A smaller loan, interest-only structuring, or a select program reviewing 0.75 to 0.99 coverage at reduced leverage may apply. LTV and terms adjust, subject to underwriting.
Does a prepayment penalty on the seller note matter?
Yes, it can. The CFPB’s balloon payment explainer stresses planning for the final payment, and any early-payoff fee is set by the note you signed. Read it and request a payoff statement before setting a plan.
Can an LLC borrow for this?
Entity vesting is welcome, with no layered entities, subject to lender program eligibility. Entity papers must match title.
For current guidelines and terms, see Lendmire’s super jumbo DSCR loan programs page.
Lendmire’s self-employed mortgages page presents both super jumbo programs, bank statement and DSCR, side by side.
About Lendmire
Lendmire, NMLS# 2371349, is a non-QM mortgage broker serving real estate investors in 41 markets, including Washington, D.C., through DSCR investor loan programs. Qualification is generally reviewed around the subject property’s rental income, not the borrower’s W-2 history — a practical fit for LLC-titled portfolios and self-employed investors. All scenarios remain subject to lender review and program guidelines. Two consecutive Scotsman Guide Top Mortgage Workplace recognitions (2025, 2026).
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
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. Nolo – Subordination Agreement
2. CFPB – What is a balloon payment?
3. CFPB – Truth in Lending Act (PDF)
This article is part of Lendmire’s super jumbo DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Should an Operator With LLC Rentals Use One Super Jumbo DSCR Note? · How to Structure a Super Jumbo DSCR Loan for 20+ Properties · How to Package Rentals in Five States Into One Super Jumbo DSCR Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.