The Quick Read: On a refinance there is no down payment, because the equity already in the property takes that role, and the loan is sized to the smaller of two limits: a leverage cap on appraised value and a rent-coverage test on the new payment.
- Cash-out refinances on standard rentals top out around 75% LTV across most of the network. Rate-and-term files can run higher, with a ceiling near 85%.
- Equity is appraised value minus the payoff of what you owe. The appraisal sets the number.
- Rent can bind before equity does. Select programs start at 1.00 coverage, subject to lender guidelines.
- Passing the coverage test does not mean the property cash-flows.
Equity requirements on these loans come from lender program guidelines, not from a regulator. Across the wholesale network, the pattern is consistent. Each file has to clear both an equity test and a rental coverage test. What follows is how those tests work, step by step, and where they break.
DSCR Cash-Out Calculator
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
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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.
Key Terms Defined
Equity: appraised value minus the payoff of existing liens on the property.
LTV: the new loan balance divided by appraised value.
DSCR: monthly rent divided by the full monthly payment, meaning principal, interest, taxes, insurance and association dues (PITIA).
Cash-out refinance: a new loan larger than the payoff, with the difference paid to the borrower.
Rate-and-term refinance: a new loan that replaces the old balance without taking meaningful cash.
Seasoning: the ownership period a lender requires before it sizes a loan on appraised value instead of cost.
Why a Refinance Has No Down Payment
A down payment is cash you put into a purchase. A refinance has no purchase, so nothing is “put down.” The stake is the equity you already own, and the lender’s leverage cap decides how much of it must stay in the property.
The flip side of the cap is the equity requirement. At a 75% LTV cash-out cap on a standard rental, you keep at least 25% equity after the loan funds. At the purchase tiers, most files land at 75%-80% LTV, which means 20%-25% down. Select high-leverage purchase programs reach 85% LTV with roughly a 700+ score, subject to lender guidelines.
| Factor | Purchase | Cash-out refinance |
|---|---|---|
| Your stake | Cash down | Existing equity |
| Typical leverage | 75%-80% LTV | Up to about 75% LTV |
| Value basis | Lower of price or appraisal | Appraisal, once seasoned |
| Rent test | Yes | Yes, on the new payment |
One distinction trips up newer investors. Equity you own in a refinance is different from instant equity gained by buying below market. The purchase loan still sizes off price and appraisal, and it still needs cash from you. Equity only works as a stake after the property is yours and the lender will lend against its value.
The Two-Limit Rule
Every file gets sized twice, and the smaller answer wins.
The equity ceiling. Appraised value times the maximum LTV, minus the existing payoff. That is the most cash the equity side allows.
The coverage ceiling. The lender tests rent against the new, larger payment. Cash-out grows the balance, so the payment grows, and the ratio drops. If rent can’t carry the bigger payment at the required coverage, the loan gets back-solved from rent.
Most investors plan around the first number and get surprised by the second. An owner with heavy equity and thin rent can find coverage binding long before the leverage cap does.
| Situation | Binding limit | What it means |
|---|---|---|
| High equity, strong rent | Equity cap | Loan reaches the LTV ceiling |
| High equity, thin rent | Coverage | Loan shrinks to what rent supports |
| Low equity, strong rent | Equity cap | Little or no cash-out available |
| Appraisal comes in low | Equity cap | Cap applies to the lower value |
A 1.00 ratio is where select programs start. Stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. No-ratio structures exist only through select lenders, generally for borrowers who already own a primary residence.
Worked Examples (Ratios, Not Dollars)
Run the numbers on three modeled files. The inputs are assumptions, not market data, and everything is expressed as a percentage or a ratio.
Equity binds. A rental with large equity and rent that clears roughly 1.3x on the new payment. The 75% LTV cash-out cap is the limit, so proceeds stop where the cap stops. More rent wouldn’t add cash. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Rent binds. A rental valued well above its payoff, but rent that covers the larger payment at only about 1.0x after the cash-out. The leverage cap would allow more, yet the ratio won’t, so the lender sizes the loan down. The investor takes less cash than the equity math suggested.
Short-term rental. STR collateral gets tighter treatment. Refinance runs around 70% and cash-out 70% for short-term-rental collateral. Expect a 640+ score and about 12 months of hosting history, with a 1.00 coverage floor on refinances. STR purchase leverage tops out at 75%. 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. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
How Underwriting Treats the Appraisal
The appraisal does two jobs. It sets the value the LTV cap applies to, and it supplies the rent figure the coverage test uses. For a single-family rental, the rent schedule comes from Form 1007, which the appraiser prepares as an attachment to the appraisal so the lender can obtain market rent. Freddie Mac publishes the same form as Form 1000. For 2-4 units the appraiser uses a small residential income report instead. Only the form names carry over. Those agencies’ selling rules don’t govern a DSCR file.
An appraisal shortfall hits twice. The cap applies to the lower value, so cash drops. And if the appraiser’s market rent comes in under in-place rent, some programs credit the lower figure, which pulls coverage down as well. That is the quiet failure on thin files: a modest value miss plus a modest rent miss, and the loan no longer sizes to the plan.
A reconsideration request is routine. Recent comparable sales, condition notes and lease evidence make a clean packet. Don’t bring a gut feeling.
Seasoning and the Value Basis
Seasoning is lender policy, not law. About 6 months of ownership is the common expectation across the network. Inside that window, lenders often size on the lower of cost or appraisal. After it, they size on appraised value.
This is where BRRRR investors stall. They buy, rehab, and expect to cash out on the after-repair value right away. If the ownership clock hasn’t run, the loan sizes on cost, and the proceeds may not cover the bridge payoff. Plan the seasoning date before the rehab budget, not after.
The 70% rule you hear in investor circles is a purchase-price heuristic. It is buying guidance, not a DSCR LTV cap.
Net Proceeds: What You Actually Take Home
Gross cash is not the number that matters. The waterfall runs in this order:
1. New loan amount sized to the smaller ceiling.
2. Minus the payoff of the existing mortgage and any other liens.
3. Minus closing costs.
4. Minus any prepayment charge on the loan being replaced.
5. Minus reserves the program requires you to show.
Reserves vary by lender, leverage, loan size and transaction type. About 6 months of PITIA is common. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived, and loans above that size typically step up to about 9 months. Reserves documentation needs to be clean, because a thin statement is a common reason a file gets sent back.
Cash-out also re-prices the entire balance. A low-cost first mortgage is given up, so the real question is whether the proceeds earn more than that trade costs.
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.
Using the Proceeds as Your Next Down Payment
This is the equity-recycling play. Refinance property A, take the net proceeds, and put them toward the purchase of property B. The cash is a down payment on B, and the equity in A was the stake that produced it.
The mechanics matter. The proceeds need to be documented from the refinance settlement statement. Both loans still carry their own reserves, so the second purchase can’t consume the cushion the first one needs. Leave room for closing costs on both sides.
For more on how much equity remains after a cash-out, see Lendmire’s piece How Much Equity a Cash-Out Refinance Leaves for a Rental Down Payment.
How Much Cushion to Leave
Maxing out the cap is allowed. Whether it’s wise is a separate decision. A framework beats a feeling:
- Coverage drift. Taxes and insurance rise, and rent may not follow. A file at 1.00 has no room. Stress-test at a lower ratio before committing.
- Appraisal risk. If a value miss would wipe out your proceeds, you were sized too tight.
- Vacancy. DSCR compares rent to PITIA only. Clearing 1.00 is not positive cash flow. Repairs, vacancy, management, utilities and capex sit outside the calculation.
- Credit tier. A 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers.
- Next move. If you plan to refinance again or sell, leave equity that keeps that option open.
A larger down payment on a purchase lowers the payment and can lift the ratio. It never erases leverage caps, credit floors, reserve rules or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Edge Cases Where the Rule Bends
- Delayed financing. Some programs size a recent cash purchase to documented acquisition cost. Details vary by program.
- Loan size. Larger balances typically step leverage down. Loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders), and above $2,500,000 the network generally holds to 30-year fixed structures.
- Term structures. The spine is the 30-year fixed. Extended 40-year terms and interest-only periods are available through select lenders, and ARM structures exist.
- Ineligible property. Manufactured homes (single- and double-wide), log homes and barndominiums are not offered in these programs, no matter how much equity they carry.
- Entity ownership. Properties held in an LLC are generally eligible, subject to lender program eligibility. Entity documents and operating agreements belong in the file up front.
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. That is the principle only. It is not legal advice, and the file is underwritten individually.
Mistakes That Stall Files
- Planning around equity and ignoring the rent test.
- Cashing out on after-repair value before seasoning is met.
- Showing thin or unsourced reserves.
- Missing lease or proof-of-rent documents on an occupied property.
- Leaving out entity documents on an LLC file.
- Forgetting that the appraisal can come in under the plan.
- Treating a passing ratio as proof of cash flow.
Frequently Asked Questions
How much equity do I need to keep on a DSCR cash-out refinance?
On standard rentals, cash-out tops out around 75% LTV across most of the network, so about 25% equity stays in the property. Short-term-rental collateral is tighter, with cash-out around 70%. Individual files are subject to lender guidelines.
Can I use home equity as a down payment on a new rental?
Only through a refinance. You borrow against a property you own, then use the net proceeds toward the next purchase. The purchase loan still needs its own cash and reserves, and the proceeds have to be documented.
Why did my cash-out come in lower than the equity math said?
Usually the rent test bound first. The larger payment lowered coverage, so the loan was sized to what rent supports. A low appraisal, payoff costs and required reserves also reduce what you take home.
Does seasoning affect how much I can pull out?
Yes. Roughly 6 months of ownership is the common expectation. Before that, lenders often size on cost, not appraised value, which can leave a rehab bridge payoff short.
Can I qualify with coverage below 1.00?
Coverage below 1.00 is available through select lenders in the network, with leverage and terms adjusted. A separate path, no-ratio, is available only through select lenders, generally for borrowers who already own a primary residence.
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. The complete DSCR loans guide covers the full program set. Not a commitment to lend; every file is reviewed by the lender.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage focused on investor financing, arranging DSCR loans in 40 states plus Washington, D.C. — 41 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule)
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Reassessment Requirements for a California Rental Purchase · DSCR Loan Reassessment Rules for a Purchase or Refinance · DSCR Loan Rent and Payment Inputs for a Condo With Dues
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.