The Quick Read: A hard money loan is repaid with interest-only payments and one lump-sum payoff at maturity, so the real requirement is an exit that closes before the maturity date, and for a stabilized rental that exit is usually a DSCR loan that pays the old lien off in full at closing. DSCR stands for debt service coverage ratio, the test of whether a property’s rent covers its monthly housing payment. The new loan is a separate approval with its own tests, so plan it before you need it.
- Hard money is short, interest-only debt. Nothing pays the balance down, so the full balance comes due at maturity.
- A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. It also needs enough equity and a property ready to rent.
- The new loan is the lower of two limits: the leverage cap applied to the new lender’s own appraisal, and the amount the rent can support.
- A payoff-only refinance and a cash-out refinance follow different rules. Cash back changes the leverage cap and the seasoning requirement.
- Your payoff number changes daily, so work from a written payoff statement and refresh it near closing.
How Does Hard Money Get Repaid?
Hard money is repaid in three parts: monthly interest, a short term, and a balloon at the end. A balloon payment is the entire remaining balance due in one lump sum when the term ends.
DSCR Cash-Out Calculator
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On the hard money programs Lendmire arranges, terms typically run 6 to 18 months, interest-only, with no prepayment penalty. That varies by lender, property, and experience. Interest-only means each payment covers interest and nothing else. The principal you borrowed is still there on the last day.
There are no multi-year options on the current program. Investors who need a longer runway refinance into long-term rental financing once the property is stabilized.
Leverage also shapes what you owe. Fix-and-flip hard money is usually sized on project cost, and the figures vary by lender, property, and experience. The top tier of 93% of project cost goes only to experienced investors with 5 or more completed projects, and every tier stops at 75% of after-repair value. Rehab money typically arrives in draws against completed work. Every draw adds to the balance you must eventually pay off.
Check your own note for a minimum-interest clause. Some hard money notes guarantee a set number of months of interest, and that amount stays in your payoff figure even if you exit early.
Why the Exit Plan Is the Repayment Requirement
Because nothing amortizes, your repayment plan and your exit plan are the same thing. Lenders ask for the exit upfront for that reason. A project with great numbers and no way out is just a loan that comes due.
You have a handful of ways out. They suit different situations.
| Exit | Best fit | What the next party checks | Main risk |
|---|---|---|---|
| Sell the property | Flips, thin rent | Buyer’s financing and appraisal | Price falls short |
| DSCR refinance | Finished, leased rentals | Value, rent vs. payment, reserves | Low appraisal or thin rent |
| Extend the note | Rehab running late | Lender’s willingness and fees | Extension fees pile up |
| Pay from other funds | Cash-rich investors | Nothing | Ties up capital |
For a property you plan to hold, the DSCR refinance is the standard exit.
What a DSCR Refinance Needs Before It Can Pay You Off
A DSCR loan can pay off hard money only if the property passes the new lender’s tests on its own. Your hard money lender’s willingness to be repaid does not matter to the new underwriter. Three things do: the property’s condition, the rent, and the equity.
Property readiness. The property needs to be finished, insurable, legal as a rental, and ideally leased. Manufactured homes, log homes, and barndominiums are not offered through the DSCR programs in Lendmire’s network, so a hard money project on one of those cannot use this exit. Assemble draw records, permits, the lease, and the insurance binder before you apply.
Rent coverage. The DSCR is monthly market rent divided by PITIA. PITIA is principal, interest, taxes, insurance, and any association dues. Many select programs start at 1.00, where rent just covers the payment. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage. Clearing 1.00 does not mean the property cash flows, because repairs, vacancy, management, and utilities sit outside the calculation.
Equity. On a standard rental, a DSCR cash-out refinance tops out around 75% LTV. LTV is loan-to-value, the loan balance as a share of appraised value. On a rate-and-term refinance with no cash back, the ceiling is higher, up to 85% LTV on an investment property. Both depend on credit, reserves, and property review. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Credit and cash matter as well. A 620 score is the floor in parts of the network, most DSCR programs want about 660, and 700 or higher unlocks the strongest leverage tiers. Reserves commonly run about 6 months of PITIA, stepping up to roughly 9 months above $1,500,000. Conservative rate-and-term files under that size can sometimes see reserves waived. Standard DSCR loans run up to $3,000,000, subject to lender guidelines.
Lendmire is a mortgage broker with DSCR programs across 41 markets, including Washington, D.C. It arranges these loans through select lenders in its wholesale network and does not underwrite or approve them. Across that network, the pattern is consistent: the file that exits cleanly was planned backward from the maturity date.
For the program-level overview, see the complete DSCR loans guide. The hard money exit refinance page covers the path out of a short-term loan specifically.
Payoff Only or Cash-Out? The Label Changes Everything
A refinance that only covers the payoff, the daily interest, and closing costs is a rate-and-term refinance. Once cash comes back to you, it becomes cash-out. The DSCR loan’s guidelines draw that line, and the “incidental cash” tolerance differs from lender to lender.
The label sets three things:
- Leverage cap. Payoff-only allows more leverage than cash-out, as noted above.
- Seasoning. Seasoning is the waiting period a lender wants between two events, here between buying the property and refinancing it. For DSCR cash-out, the common expectation is about 6 months, measured from title recording rather than from rehab completion or the lease date.
- Value basis. Inside the seasoning window, a lender may size the loan on cost, meaning purchase price plus documented rehab. After the window, it sizes on appraised value.
Strong rent does not shorten seasoning. Rent and time are separate tests. Your own after-repair value estimate also does not size the loan. The new lender’s appraisal does.
A hard money cash-out or rate-and-term refinance is a different product from a DSCR exit. The hard money version tops out at 65% of value and is still short-term, interest-only debt. It buys time. It does not retire the problem.
A Worked Example in Percentages
Say a rehab is finished and leased. These are modeled assumptions, not market data. The hard money payoff equals 70% of the value you expect the new appraisal to show, and a DSCR cash-out refinance in the network caps at 75% LTV on a standard rental. That leaves some room in value, before closing costs and the per diem on the old note. Say the rent supports roughly 1.25x coverage, so the rent test is not the binding limit. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Now the appraisal comes in 10% lower than you expected. The payoff has not moved. It now equals about 78% of the new value, which is over the 75% cap. The loan can no longer cover the payoff, and you owe cash at closing.
The break-even formula is simple: payoff plus exit costs, divided by the LTV cap, gives the minimum appraised value you need. In this example, 70 divided by 0.75 means value can fall about 6.7% from your expectation before the payoff alone exceeds the cap. Closing costs shrink that cushion further.
Run the same check on rent. If market rent from the appraiser’s rent schedule produces coverage below the program floor, the rent-supported loan amount falls below the payoff even when equity exists. Your options then are a smaller loan with more cash at closing, an interest-only structure through select lenders, or a below-1.00 program through select lenders, where leverage and terms adjust. A few select lenders also offer no-ratio qualification, generally for borrowers who already own a primary residence. Model all of this before you buy, not after the rehab.
The Payoff Statement and Who Owes You One
Get a written payoff statement from the hard money lender before you apply. It should show the principal drawn, accrued interest, any extension or exit fees, any minimum-interest charge, a good-through date, and a per diem. Per diem is the daily interest that keeps accruing until the loan is paid off.
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 distinction matters here. The federal payoff-statement deadline of 7 business days after a written request, described in the CFPB’s mortgage servicing compliance guide, was written for consumer credit secured by a dwelling. Business-purpose hard money may sit outside it, so do not assume you hold that right. Nolo’s explanation of payoff statements describes the consumer-side remedy, which is a written notice of error. Your real protection is the note and the payoff terms in it.
State law adds its own layer. Massachusetts, for example, sets validity-period rules for payoff statements in General Laws chapter 183, section 54D. Other states differ. Ask the old lender for its payoff process in writing, and confirm anything unclear with a closing attorney.
Expect a few mechanics. The new lender or title company usually needs your signed authorization to request the payoff. The statement expires, so order a refreshed one near closing. If the wire arrives late, the number moves. At closing, the new lender wires the payoff through title, and the old lender releases its lien and records the discharge.
Counting Back From the Maturity Date
Work backward from the day your note comes due. The sequence below shows what has to fit.
1. Day one of the note. Seasoning and the maturity clock both start at purchase.
2. Mid-rehab. Confirm the DSCR program’s seasoning expectation and credit and reserve requirements so there are no surprises.
3. Rehab complete. Collect permits, final draw records, and photos.
4. Lease signed. Gather the lease, rent history, and insurance.
5. Application. Submit the file, with entity documents if the property is held in an LLC, subject to program terms.
6. Appraisal. The lender orders its own, including a rent schedule. For 2 to 4 units, appraisers typically use an operating income statement form.
7. Underwriting and title. Reserves are verified, and the payoff statement is refreshed.
8. Closing. Title wires the payoff, and the lien is released.
Leave room on both ends. Seasoning delays are paid for in bridge interest, because the payoff grows while the window runs.
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.
Where the Rule Breaks
The general path above has named exceptions.
Maturity arrives first. If the note comes due before the DSCR refinance can close, your options are an extension, which carries fees, a payoff-only loan now, bringing cash to closing, or selling.
Low appraisal. Each point of lost value cuts the loan by the LTV cap’s fraction of that point, while the payoff stays fixed. Cash back can flip into cash due.
Rent shortfall. Thin rent can cap the loan below the payoff even when equity exists.
Prepayment on the new loan. Many DSCR notes carry a prepayment structure that varies by program. A short hold can erase the benefit of the refinance, so match the term to your plan.
Delayed-financing assumptions. Some investors expect a cash-purchase seasoning exception to apply. That concept belongs to conventional lending and generally does not cover purchases funded by a loan secured by the property, which is how hard money works.
Consumer-purpose files. A property you will live in within a year falls outside the business-purpose framework. DSCR loans are not for primary residences.
Two-step exit. Some investors do a payoff-only refinance first and a cash-out refinance later. That costs two closings and two appraisals.
What If the Refinance Slips Past Maturity?
Start the conversation before the due date, not after. Extensions usually cost fees, so compare that cost with the alternatives. A slipped refinance is a financial problem you can usually negotiate, but a missed maturity with no communication invites default remedies on the note.
Ask three questions in order. Can the old lender extend, and at what total cost? Can a smaller DSCR loan close with you bringing cash? Is selling now better than paying another round of bridge interest? None of these is a default answer. The right one depends on your note, your equity, and how far off the refinance really is.
Common Mistakes
- Planning the exit after the rehab is finished.
- Sizing the new loan on your own after-repair value estimate.
- Assuming strong rent shortens seasoning.
- Treating the payoff figure as fixed when it moves daily.
- Overlooking a minimum-interest clause on the old note.
- Assuming a DSCR approval is certain before the lender’s appraisal and review.
Key Terms Defined
Balloon payment: The full remaining balance due in one lump sum at the end of the loan term.
Interest-only: A payment structure where each payment covers interest and the principal stays untouched.
Payoff statement: A written figure from the current lender showing what it takes to retire the loan on a specific date.
Per diem: The daily interest that keeps accruing until the loan is paid off.
Seasoning: The waiting period a lender wants between buying a property and refinancing it.
DSCR: Rent divided by PITIA, the test of whether a property’s income covers its monthly obligation.
Rate-and-term refinance: A refinance that replaces an old loan without returning cash to the borrower.
Frequently Asked Questions
Do hard money loans require monthly payments?
Usually yes, but only interest. The principal stays untouched until maturity. On the programs Lendmire arranges, terms typically run 6 to 18 months, interest-only, with no prepayment penalty, though this varies by lender, property, and experience.
Is paying off hard money with a DSCR loan always a cash-out refinance?
No. It is cash-out only if cash comes back to you beyond the payoff and closing costs. The lender’s guidelines set where that line falls. If the DSCR loan covers just the payoff, the per diem, and costs, it is typically a rate-and-term refinance with a higher leverage ceiling.
Can I refinance right after buying?
It depends on the program. For a DSCR cash-out refinance, the common expectation is about 6 months of ownership from title recording. Before that window clears, some programs size the loan on cost instead of appraised value. Select lenders in the network vary, so check the specific program before you build your timeline.
Does strong rent let me skip the waiting period?
No. Rent coverage and seasoning are separate tests, so strong rent helps you clear the coverage test but does not shorten the waiting period. You can have a very strong ratio and still be inside the window.
What if my appraisal comes in low?
The loan shrinks while your payoff stays the same. If the payoff now exceeds the leverage cap, you owe cash at closing. Model that scenario before you buy, using the break-even formula above.
Next Step
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. Qualification is subject to lender guidelines and is 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.
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References
1. CFPB 2013 mortgage servicing compliance guide
2. Nolo: What happens if my mortgage servicer doesn’t send the payoff statement
3. Massachusetts General Laws ch. 183 §54D
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Buy a Rental With Hard Money and Refinance Into DSCR? · Can You Refinance a Hard Money Loan Into a DSCR Loan After Buying? · First-Time DSCR Refinance Requirements After a Hard Money Rehab
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
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.